Equity options traders fled back toward the safety of put contracts Tuesday, as the major market indices shed nearly 2% on the day. Among Tuesday’s 10 most active stock options, Transocean LTD (NYSE:RIG) and AT&T Inc. (NYSE:T) were the most popular among put traders, while Ford Motor Company (NYSE:F) led the way for call activity.
Overall, the CBOE equity put/call volume ratio had rebounded from Monday’s low of 0.6 to a perch at 0.76, as put contracts changed hands faster than calls.
Ford Motor Company (F)
Starting out on a positive note, Ford appears to have attracted a growing bullish following heading into the company’s quarterly report Thursday. In fact, 88% of options activity on Ford stock traded on the call side of the tape, with the majority of this volume crossing on the weekly Jan 30 $15 strike and monthly Feb $15 strike calls.
Turning to data from Trade-Alert.com, it would appear that a considerable portion of yesterday’s activity traded around noon in one large block of 13,000 Feb $18 calls. The block appeared to have been paired up with a block of 13,000 Feb $19 put contracts. Unfortunately, without additional bid/ask data at the time of the trade, it is impossible to guess the trader’s strategy.
For the record, Wall Street is expecting a profit of 23 cents per share on revenue of $34.71 billion for the quarter. Meanwhile, EarningsWhisper.com reports that Ford’s third-quarter whisper number rests three cents higher than the consensus at 26 cents per share.
Ford stock closed Tuesday just south of 15, meaning that a positive report could certainly push these contracts into the money. Reclaiming support at $15 would bode well for Ford stock, but the shares would still be staring up at overhead resistance at their 50-day moving average in the 16 area.
Transocean LTD (RIG)
Put activity was impressive on oil drilling concern Transocean LTD on Tuesday. Not only did puts account for fully 90% of all RIG options activity yesterday, but put volume soared to roughly 138% of the stock’s daily average.
Taking a close look reveals that the bulk of RIG’s put volume was focused at the March $11 and $15 strikes, which saw volume of 7,645 contracts and 9,598 contracts, respectively. Furthermore, with volume at these strikes easily outstripping current open interest, this activity was likely the initiation of new positions.
With RIG stock trading at $16.93, the options activity in the March series could be a rather significant bet that the stock will extend its year-to-date slide of more than 64%. On the other hand, it also could represent a bull put spread designed to capture premium on a technically undervalued stock.
Speaking of which, RIG appears to be rebounding from support in the $15 region, and has reclaimed its 10- and 20-day moving averages. While low oil prices are still punishing RIG’s price action, the shares appear ready to move beyond this concern.
AT&T Inc. (T)
Telecom giant AT&T was also the target of heavy put volume on Tuesday, as traders appeared to place sizable bets against T stock prior to the company’s quarterly report. These bears may be disappointed, however, as T stock headed higher in after-hours trading yesterday.
AT&T posted a fourth-quarter profit of 55 cents per share after the close last night, while revenue rose 4.5% to $34.4 billion. Wireless sales were a hot topic after hours; AT&T saw sales rise 7.7% thanks to higher data service charges.
Returning to T’s options data, the most popular strikes during Tuesday’s session were the $33.50, $32.50 and $32 contracts in the weekly Jan 30 series — all of which saw more than 1,000 contracts change hands. With T trading higher after hours, and these options expiring at the end of the week, it would appear that these active January contracts are likely to finish out-of-the-money.
As of this writing, Joseph Hargett did not hold a position in any of the aforementioned securities.
