With uncertainty surrounding the Fed’s course on monetary policy out of the way, the major market indices ended a three-week losing streak last week, with the S&P 500 index soaring 2.66%. Options followed the bullish flow, sending the CBOE put/call volume ratio to a one month low of 0.57. Among the top 10 most active stocks in the options pits were Microsoft Corporation (NASDAQ:MSFT), Twitter Inc (NYSE:TWTR) and Alibaba Group Holding Ltd (NYSE:BABA).
Let’s see what investors and traders can get out of this info.
Microsoft Corporation (MSFT)
Enterprise software behemoth Microsoft Corporation drew considerable bullish attention in the wake of its Convergence 2105 event in Atlanta last week. Highlights from the event feature an amplified focus on the red-hot Internet of Things (IoT) market, which in the center piece of Microsoft’s new Azure cloud service. According to the company, Azure will provide a suite of services, including billing, monitoring, analytics and predictive maintenance for IoT deployments.
MSFT stock responded well to the conference, ending a losing streak last week and attracting a wealth of bullish activity in the options pits. Specifically, some 215,334 options contracts changed hands on MSFT on Friday, capping week with stronger-than-usual volume.
Furthermore, 59% of this volume crossed on the call side. While most of this volume was related to the expiration of March options, MSFT saw considerable roll-out activity, with the out-of-the-money April $45 strike emerging as home to peak call open interest with 107,714 contracts.
Twitter Inc (TWTR)
With a lack of any major headline news, shares of social media giant Twitter have been content to consolidate their post-earnings gains into a trading range just south of the round-number $50 level. The activity has attracted considerable speculation within the options community, with many bulls speculating on an upside breakout.
Friday’s activity was no different, with 70% of the 197,671 contracts in volume trading on the call side of the tape. Currently, the battle in the options pits appears to be taking place at the April $47 strike, where 37,079 calls and 31,416 puts reside as open interest.
TWTR stock is currently trading just north of the $47 strike, but that could change in today’s trading. Early this morning, analysts at Vetr slashed their rating on the stock from “hold” to “sell” with a price-target of $55.47. In premarket trading, TWTR stock is currently trading fractionally lower.
Alibaba Group Holding Ltd (BABA)
It’s been a rough year for Alibaba investors, and just when the stock appeared to be getting back on its feet, JPMorgan analysts stepped in to slash its price target on the stock to $109 to $117. While JPMorgan still believes the company will do well over the long run, it cut its revenue and profit estimates by 4% to 5% for 2016 and by 7-8% for 2016 due to increased spending in search and ad quality improvements.
The report put a dent in bullish options activity for BABA stock, but the optimistic bias still prevailed during Friday’s trading. Overall, 182,018 contracts traded on BABA, with 56% of those options crossing on the call side.
March expiration drove most of Friday’s activity, but traders should keep an eye on the growing popularity of April options, especially the overhead $95 strike, which is currently home to peak call (47,827 contracts) and put (41,555 contracts) open interest for the series.
As of this writing, Joseph Hargett did not hold a position in any of the aforementioned securities.
