Stocks found positive ground on Thursday, providing some relief on Wall Street. The battered major market indices are still headed toward their second-consecutive weekly loss, however, unless yesterday’s rebound extends through the close today. All three of major market indices finished in positive territory, with the Nasdaq Composite leading the way with a gain of 0.5%. Options traders remained cautious, with the CBOE put/call volume ratio dipping to 0.69. The 10-day moving average held at 0.66.
On the equity front, Alibaba Group Holding Ltd. (NYSE:BABA) shares surged after the company reported better-than-expected fourth-quarter earnings, drawing a wave of call option activity, while speculators pounced on the possibility of a $3.5 billion deal for Yelp Inc. (NASDAQ:YELP). Finally, Sirius XM Holdings Inc. (NASDAQ:SIRI) was flooded with calls despite any major headline news.
Alibaba Group Holding Ltd. (BABA)
BABA stock surged more than 7% on Thursday, after Alibaba Group posted a fourth-quarter profit of 48 cents per share on revenue of $2.81 billion. Wall Street was looking for earnings of 42 cents per share on revenue of $2.8 billion. Under pressure from recent counterfeit merchandise scandals and other governance issues, BABA CEO Jonathan Lu will resign as of May 10, to be replaced by COO Daniel Zhang in the top spot.
BABA stock options traders appeared please with the change in management and the earnings figures. Overall, volume swelled to a short-term record 416,042 contracts, with 70% of this activity crossing on the call side.
Digging into BABA’s May open interest configuration reveals that traders are still cautious. Specifically, peak May call open interest resides at the in-the-money May $80 strike totaling 32,416 contracts. Peak put open interest also lies at the May $80 strike, totaling 34,333 contracts. That said, the May $85 strike is gaining in popularity, and sports open interest of 20,430 contracts.
In pre-market trading, BABA stock has added another 1.8% to trade just north of $87.50.
Yelp Inc. (YELP)
Business ratings service and social media firm Yelp dashed into yesterday’s top 10 most active options list after The Wall Street Journal reported that the company is exploring the possibility of a sale — with the company potentially attracting as much as $3.5 billion. A deal is far from imminent, but Yelp has been working with investment bankers and contacted potential buyers, according to The Journal.
Options volume for YELP stock was well above average, totaling 115,766 contracts. Additionally, calls held a distinct edge, accounting for 59% of the day’s total volume. Despite Thursday’s rise in call volume, put open interest dominates YELP’s short-term landscape. Peak May open interest currently lies at the $45 put strike, totaling 2,663 contracts. Meanwhile, another 1,800 are open at the $43 put strike, while more than 1,600 are open at the $42 put strike.
After surging 23% on Thursday, YELP stock is trading about half-a-percent lower in pre-market trading this morning.
Sirius XM Holdings Inc. (SIRI)
While Sirius XM was not targeted by any major headlines during the past week, the stock has a few minor details that could have driven Thursday’s surge in options volume. First, a new options series began trading on SIRI stock yesterday, with the June 26 series opening up for trading and potentially driving added volume. Additionally, SIRI President and CEO Mark Redmond announced that he will participate in a panel at Canadian Music Week this weekend, an industry event that could prompt movement from the stock. Finally, the company will be holding its annual shareholder meeting on May 19.
Whatever the reason, SIRI stock was hit with an unusual amount of call volume on Thursday, with practically all of the 146,863 contracts trading on the stock crossing on the call side. On strike in particular stands out for SIRI — the May $4 call, where 17,017 contracts are currently open. Open interest at this particular strike outstrips all others until we hit the June series of options, when peak open interest spikes to 81,431 contracts at the $3.5 strike.
Technically, SIRI rose 0.5% on Thursday, but the stock is trading flat heading into the open this morning.
As of this writing, Joseph Hargett did not hold a position in any of the aforementioned securities.
