Despite a deepening selloff from the major market indexes, options volume was call heavy on Wednesday, with Alibaba Group Holding Ltd (NYSE:BABA), Apple Inc. (NASDAQ:AAPL) and Facebook Inc (NASDAQ:FB) among the top 10 most active stocks on the day. Overall, the CBOE equity put/call volume ratio fell back to a reading of 0.67 from its perch at 0.76 on Tuesday, as stock option calls gained favor on the day.
Other notable highlights in yesterday’s options activity include Kinder Morgan Inc (NYSE:KMI), which saw 90% of yesterday’s options activity change hands on the call side of the tape, and Delta Air Lines, Inc. (NYSE:DAL), where 89% of the stock’s options volume consisted of calls. While there was little DAL stock news, KMI options activity was likely related to a dividend capture play ahead of today’s ex-dividend.
Apple Inc. (AAPL)
Not only has Apple stock held at the top of the top 10 most active options list all week, the shares also were among yesterday’s biggest gainers, jumping 5.65% on the session. Despite already high expectations, Wall Street was surprised by Apple’s blowout quarter.
Apple banked a 30% increase in revenue to $74.6 billion on earnings of $3.06 per share, and it also shipped a whopping 74.5 million iPhones — according to CEO Tim Cook, that’s 34,000 iPhones every hour during the quarter!
With weekly Jan 30 series options expiring tomorrow, it’s no surprise that it was home to AAPL stock’s most active call strikes. Peak volume of 24,604 contracts crossed at the Jan $120 call, representing of third of the strikes open interest, while 13,207 calls changed hands on AAPL’s Jan $118 strike.
While both contracts were out of the money as of the close on Wednesday, AAPL stock has reclaimed all of its major daily and weekly trendlines, and should be poised to finish the week on a positive note despite broader market pressures.
Alibaba (BABA)
Alibaba stock was also the target of heavy call volume Wednesday, accounting for 68% of the roughly 354,000 contracts traded on the session. The apparent optimism came despite the shares falling prey to selling pressure in the wake of a very public dispute with Chinese regulators. Specifically, regulators accused Alibaba of failing to curtail illegal business being carried out on its online platforms.
Meanwhile, this morning, Alibaba released third-quarter earnings of 81 cents per share on revenues of $4.22 billion, with the top line beating estimates but the bottom line falling short.
On the options front, weekly Jan 30 series contracts were quite popular with the out-of-the-money $100, $102, $103, and $105 strikes seeing considerable volume. A closer look reveals what appears to be a Jan $100/$105 call spread position on BABA, with roughly 2,400 contracts trading at each strike. That said, without additional bid/ask data, it is impossible to tell the true nature of this position.
Technically, BABA stock dropped below key psychological support at the $100 level on Wednesday, and shares look to open even lower this morning. BABA remains below all of its major daily moving averages, and short of a quick turnaround, will breach January lows around $96.
Facebook (FB)
Finally, Facebook stepped up yesterday to release fourth-quarter earnings of 54 cents per share on revenue of $2.72 billion, easily topping Wall Street’s expectations. The company also reported 1.39 billion monthly active users, up 13% year-over-year, and gross margin of 29% — all of which exceeded consensus expectations.
Costs, however, remained a concern, sending the stock roughly 1.8% lower in after-hours trading. A sell-the-news event could also be exacerbating the problem in the wake of building investor optimism, and FB stock could be set to open south of technical support at the $75 level.
Heading into the report, options traders were loading up heavily on FB stock calls. Fully 65% of Wednesday’s options activity on FB traded on the call side, with the weekly Jan. 30 series $80 strike seeing the most action with volume of 6,422 contracts. Following at a distant second was the Jan $79 call with volume of 3,080 contracts.
Barring a rebound in FB stock heading into the weekend, these weekly calls appear likely to finish out of the money.
As of this writing, Joseph Hargett did not hold a position in any of the aforementioned securities.
