Stocks continued to bounce around breakeven Wednesday as Wall Street digested the minutes from the latest FOMC meeting. Concerns that the Fed could tighten rates as early as June were eventually dismissed as analysts placed the date closer to September.
Options activity too held its ground, with the CBOE’s put/call volume ratio edging higher to 0.60 while the 10-day moving average slipped to 0.65. Among the day’s most active stocks in the options pits were Rite Aid Corporation (NYSE:RAD), Alcoa Inc (NYSE:AA) and Mylan NV (NASDAQ:MYL).
Rite Aid Corporation (RAD)
Shares of pharmaceutical concern Rite Aid added just over 2% on Wednesday in the wake of the company’s fourth-quarter report. Revenue for the quarter rose 3.8% to $6.8 billion, while earnings soared to $1.79 per share from just 6 cents per share in the year-ago period. Full-year revenue was also up sharply, adding 3.9% to $26.5 billion.
Options traders flooded RAD stock, sending volume to record short-term levels. Overall, some 168,692 contracts traded on RAD, with 78% of those crossing on the call side. The April $9 strike was the most active, with 4,515 contracts trading on open interest of 151,924 contracts.
Following at a distant second were the weekly April 10 series $9 call with volume of 2,225 contracts on open interest of 11,621 contracts, and the weekly April 10 series $9 put, with volume of 2,037 contract trading on open interest of just 1,061 contracts. The weekly April $9 put is notable not only because volume was higher than open interest, suggesting new open positions, but also because these options expire at the close of trading tomorrow afternoon.
Alcoa Inc (AA)
On Monday, I noted that it would take a “new bit of poor guidance” to create additional downside for Alcoa stock.
Unfortunately, the company obliged.
During its first-quarter earnings report, Alcoa said that due to rapid Chinese expansion, aluminum supply will exceed demand by a heft 326,000 metric tons. The expectations contrasted sharply with Alcoa’s January prediction for a 38,000-ton deficit.
The dismal guidance undermined an otherwise solid quarterly report, with Alcoa earnings of 28 cents per share and revenue of $5.82 billion easily outstripping the consensus estimates. As a result, AA stock was trading down 2.4% in premarket trading at last check.
Options traders remained optimistic heading into the report on Wednesday, with 63% of the day’s volume of 145,219 contracts crossing on the call side. The most active contracts on the day were the July $14 and $17 strike puts, with roughly 2,500 contracts trading on each on open interest of 4,215 contracts and 1,172 contracts, respectively.
Additionally, the April $17 and $20 strike puts were nearly as active, with approximately 2,100 contracts trading each on open interest of 4,091 and 2,431 contracts. Combined, this June and April options activity appears to have been either calendar spread activity or the rollout of an existing position.
Mylan NV (MYL)
Shares of global pharmaceuticals company Mylan NV surged more than 14% higher on Wednesday as Wall Street nodded its approval to the company’s proposed takeover of Perrigo Company plc (NYSE:PRGO). Mylan is paying $28.9 billion in cash and stock for the firm, valuing PRGO at $205 per share. Currently, no formal agreement has been reached, and Perrigo said it will have its board consider the offer and make an announcement “when appropriate.”
Speculative options traders rushed to position themselves ahead of Perrigo’s announcement, sending 105,737 contracts across the tape on MYL stock. Calls made up some 72% of this activity, with call volume swelling to nearly 400% of MYL’s daily average call volume. Taking a closer look reveals that the most sought after contract was the April $62.50 put, where 3,823 contracts traded on open interest of just 261 contracts.
Following translation, there are now 4,093 contracts open at this front-month strike, indicating that practically all of yesterday’s volume was the initiation of new put positions.
As of this writing, Joseph Hargett did not hold a position in any of the aforementioned securities.
