Stocks resumed their recent decline Tuesday, as concerns that more economic stimulus may be needed across Asian markets plagued the major market indices. The result in the options pits was a slight return to cautious trading, with an increased preference for puts pushing the CBOE put/call volume ratio off monthly lows to a middling reading of 0.65. The 10-day moving average, however, slipped to a one-month low of 0.63.
Semiconductors dominated the options landscape on Tuesday, with Micron Technology, Inc. (NASDAQ:MU) attracting considerable attention ahead of the company’s quarterly earnings report. Meanwhile, Google Inc (NASDAQ:GOOG, NASDAQ:GOOGL) takeover rumors boosted activity for Twitter Inc (NYSE:TWTR). Finally, Brazilian mining firm Vale SA (ADR) (NASDAQ:VALE) saw activity on economic news out of China.
Twitter Inc (TWTR)
Call activity has been brisk on social media giant Twitter Inc. during the past several weeks, with the typically bullish options trading at a clip of three-to-one versus their put counterparts. Recently, calls have grown even more popular on TWTR stock, with rumors of a potential take-out by Google. While nothing official is in the works, most analysts agree that the move would certainly strengthen Google’s lagging social media presence.
On Tuesday, call volume soared to a roughly four-to-one ratio versus put volume, with 74% of the 138,307 contracts trading on TWTR stock crossing on the call side. TWTR’s breakout above the psychologically significant $50 level has created a shift toward out-of-the-money call activity on the stock. While peak April call open interest still rests at the $47 strike, the $50, $51 and $52 strikes saw quite a bit of attention on Tuesday.
In premarket trading, TWTR is advancing once again, with the shares up roughly 1% at last check.
Micron Technology, Inc. (TWTR)
Micron has been a hot topic within the semiconductor sector since the company announced a joint venture with Intel Corporation (NASDAQ:INTC) last week. The company was back in focus with options traders on Tuesday, as investors positioned themselves ahead of Micron’s second-quarter earnings report tomorrow.
Currently, Wall Street is expecting earnings to fall roughly 16% to 73 cents per share for the quarter, while revenue is seen rising 1% to $4.15 billion. With results largely expected to arrive in-line, Micron’s guidance may be a more important driver for the stock.
In the options pits, calls are the investment vehicle of choice at the moment, with 64% of the 143,141 contracts trading on MU on Tuesday crossing on the call side. As you might expect, the weekly April 2 series of options was the most active — these options expire at the end of trading tomorrow and will be the most affected by Micron’s quarterly report. Open interest for the series is currently focused at the out-of-the-money $28.50 and $29 strikes, totaling more than 5,500 contracts each.
Vale SA (ADR) (VALE)
Vale SA has struggled greatly during the past several weeks, as weakness in the global economy has plagued metals mining firms. Brazilian firms have been hit especially hard, as slowing growth in their largest trading partner, China, has been quite a thorn in their sides. While China has indicted that it will extend economic stimulus measures, iron ore prices continue to decline due to slugging demand and low inventories among steel producers across China.
VALE stock options traders have understandably grown quite protectionist, with puts dominating the landscape. In Tuesday’s trading, some 74% of all VALE options volume traded on the put side. Currently, peak April put open interest rests at the in-the-money $6 strike, totaling 14,242 contracts. Arriving at a distance second is the out-of-the-money April $5 strike, with 6,182 contracts open.
So far this morning, VALE stock was down another 1.6% at $5.56 at last check.
As of this writing, Joseph Hargett did not hold a position in any of the aforementioned securities.
