Stocks pulled back from multiyear highs on Tuesday, sending the major market indices broadly lower. Confidence in call options wavered on the CBOE, sending the exchange’s put/call volume ratio to a one-month high of 0.66.
Among the top 10 most active stocks in the options pits were Alibaba Group Holding Ltd (NYSE:BABA), Micron Technology, Inc. (NASDAQ:MU) and General Electric Company (NYSE:GE). Let’s take a look at what we can learn from the recent action.
Alibaba Group Holding Ltd (BABA)
The shares of Chinese internet concern Alibaba Group were smacked lower on Tuesday, sending the shares to a fresh all-time low. Driving the stock lower were rumors of vendor order manipulation, designed to boost those vendors’ ratings and customer appeal on Alibaba websites. Additionally, BABA stock was pressured by success from e-commerce site JD.com Inc. (NASDAQ:JD), which posted better-than-expected earnings.
Whether to hedge fresh short positions, or to bet on a short-term rebound in the stock, BABA stock options traders favored calls during Tuesday’s session. Overall volume totaled a hefty 293,997 contracts on the session, with 58% of that crossing on the call side.
So far, the most popular short-term BABA options reside in the weekly March 6 series, with the out-of-the-money $85 strike capturing open interest of 6,079 contracts. However, the at-the-money weekly March $80 strike put has seen a surge in attention recently, with open interest rising to 4,882 contracts.
Given the stock’s recent technical woes, these puts may be smart money.
Micron Technology, Inc. (MU)
Spending concern were at the heart of Micron Technology’s 5% plunge Tuesday. Analysts at Nomura Securities downgraded MU stock to “neutral” from “buy” on the belief that Micron would need to spend heavily to remain competitive in the semiconductor market. As a result, MU stock was shoved back below long-term resistance at $30, with the shares seemingly headed for a re-test of support near $28.
In response to the plunge, MU stock options traders piled into calls. Of the 101,560 contracts trading on MU, 62% were of the call variety, with traders looking to hedge fresh short positions or take advantage of the oversold shares by establishing long positions in hopes of a short-term rebound.
Zeroing in on MU’s weekly March 6 series of options, the at-the-money $29 put strike is by far the most popular, with open interest totaling 7,544 contracts. The next most popular strike is also a put, with the in-the-money weekly March $30 strike sporting 4,824 contracts in open interest.
MU is pulling back once again in premarket trading, with shares looking to test support at $29 in today’s trading.
General Electric Company (GE)
There was no real headline news for GE stock on Tuesday, but shares still retreated nearly 1% alongside broad market weakness. Unfortunately for GE investors, the pullback resulted in GE stock dipping back below long-term resistance at $26.
The shares are currently perched on their next level of technical support, their 200-day moving average. A breach of this trendline could create additional selling pressure for GE, as technical investors could see the move as a “sell” sign.
As with our other focus stocks, GE’s weakness drew additional call volume for the shares. Overall, some 94,322 GE options contracts traded on Tuesday, with 60% of that crossing on the call side. Short-term out-of-the-money calls are the soup de jour for GE, with the weekly March 6 series $26.50 and $26 strikes sporting hefty open interest of 8,193 contracts and 9,798 contracts each, respectively.
On an unrelated note, GE is slated to pay a quarterly dividend of 23 cents per share on April 27. While the date or record (or ex-dividend date) was on Feb. 23, you can (find out more information on GE’s dividend by clicking here.
As of this writing, Joseph Hargett did not hold a position in any of the aforementioned securities.
