U.S. stocks rallied Wednesday, as the Fed removed the “patient” language from its official policy statement, but indicated that it would move to raise interest rates at a slower-than-expected pace. Options traders heeded the bullish tone on Wall Street, with the CBOE put/call volume ratio moderating to 0.65, allowing the 10-day moving average to hold at 0.68.
Among the top 10 most active stocks in the options pits were Bank of America Corp (NYSE:BAC), Oracle Corporation (NYSE:ORCL) and Rite Aid Corporation (NYSE:RAD). We’ll take a look at what investors and traders can take from this info.
Bank of America Corp. (BAC)
Shares of banking behemoth Bank of America Corp faltered on Wednesday, dipping 0.68% despite the overall uptrend on Wall Street. Investors may have been reacting to a ruling by the SEC that said that BofA must allow shareholders to vote on a proposal to breakup the company by spinning off its investment banking business. The ruling places the breakup plan vote on the docket for the company’s annual shareholder meeting.
Options traders appear to be expecting positive fallout from the ruling, with 72% of yesterday’s 179,047 contracts in volume crossing on the call side. Among short-term options activity, the March 16 call still dominates the landscape with 156,412 contracts in open interest. This strike is currently just out-of-the-money following yesterday’s fractional loss. Look for the $16 area to remain contentious for BAC stock heading into the close tomorrow, when these March 16 calls are set to expire.
Oracle Corporation (ORCL)
Share of business enterprise software firm Oracle rallied nearly 3% yesterday as traders reacted to a solid third-quarter earnings report. By the numbers, Oracle earnings arrived in line at 68 cents per share, while revenue arrived slightly lower than expected. However, cloud business growth was strong, and analysts were quick to note that revenue weakness was largely due to poor currency translation due to a weak euro and a strong dollar. In addition to the positive report, Oracle also boosted its dividend by 25% to 15 cents per share.
Option volume was strong for ORCL stock, with 112,883 contracts changing hand during Wednesday’s trading. What’s more, some 60% of those contracts crossed on the call side. According to data from Avafin, overall volume arrived higher than ORCL’s 10-day average, with a single session put/call volume ratio of 0.66.
Taking a closer look, the March $44 and $45 call strikes are currently the most popular ORCL stock options, with 16,226 contracts and 13,075 contracts in residence, respectively.
Finally, if you were able to get in on the April $42/$44 ORCL bull call spread I detailed earlier in the week, now would be a good time to close out the trade for a maximum return.
Rite Aid Corporation (RAD)
Despite a lack of major headline news, options activity has been impressive on drugstore operator Rite Aid recently. While the company has announced that it has joined a multibrand loyalty program with American Express Company (NYSE:AXP), it is hardly the type of news that drives trading volume to more than twice its 20-day average.
On the session, some 262,9700 options contracts traded, with a whopping 96% of this activity crossing as call option contracts. Data from Avafin indicates that this options activity could have been related to unusual RAD stock activity, consisting of a total of 791 block trades (blocks totaling 10,000 RAD shares or more). On potential explanation for the correlation between the jump in RAD stock and the surge in call options activity is that market-makers are buying RAD stock as a way to hedge their negative position on the shares.
The only thing to note is that RAD’s movement could be due to some speculation that Walgreen Boots Alliance Inc (NASDAQ:WBA).
In premarket trading, RAD is moving higher once again, rallying 2.62% to trade at $8.23 at last check.
As of this writing, Joseph Hargett did not hold a position in any of the aforementioned securities.
