Stocks suffered stark losses across the board Thursday, as the major market indices posted average losses of 1% on the session. Weekly gains are now in question, with the S&P 500 trading well below last week’s close at 2,117.69. Options traders retreated in the face of the losses, sending the the CBOE’s put/call volume ratio higher to finish at a one-week high of 0.72. The 10-day moving average rose to a two-week high of 0.65.
Corporate earnings remained front and center for options traders, with Baidu Inc (ADR) (NASDAQ:BIDU) struggling with its slowest growth in nearly a decade, while Vale SA (ADR) (NYSE:VALE) bested expectations despite revenue falling sharply year-over-year. Finally, Pfizer Inc. (NYSE:PFE) drew speculation after reports that the company may be the mystery bidder for Swedish Orphan Biovitrum AB.
Here’s what investors and traders should know about this latest options activity.
Baidu Inc (ADR) (BIDU)
Expenses soared and revenue fell for Baidu Inc during the first quarter. BIDU reported revenue of 12.73 billion yuan, which arrived below Wall Street’s forecasts, as net income slid 3.4% year-over-year to 2.4 billion yuan — its lowest in two years. Expenses spiked 79.1% during the quarter to $368.8 million, as Baidu went on a hiring spree. Profit margins came in at 19%, the lowest in nearly a decade.
BIDU stock plunged roughly 8.5% on the news, sending the stock down for a test of psychological support at the $200 level. Options traders responded by piling into puts on BIDU, with 51% of the 137,187 contracts trading on the issue crossing on the put side. Checking in with May options, we find that peak open interest currently totals 4,800 contracts at the 200 put strike, Peak call OI, meanwhile, rests at the May $205 strike, totaling 3,800 contracts.
Look for $200 to be a battleground for BIDU stock, as technical traders struggle to find buying support for the shares.
Vale SA (ADR) (VALE)
Vale SA’s quarterly report wasn’t anything to write home about, but the stock still jumped nearly 6% on Thursday. By the numbers, the company saw revenue fall 34.3% year-over-year to $6.36 billion on the heels of an overall net loss of $3.12 billion for the quarter. Despite the ugly data, Vale’s ramp-up in production encouraged investors, with the company pushing iron ore mining volumes as a move to combat falling prices.
Options traders also viewed the report positively, with 61% of the days 198,859 contracts in volume crossing on the call side. Judging from the stock’s open interest configuration, however, that optimism is still rather muted. For instance, peak May call open interest of 2,057 contracts currently rests at the in-the-money $6.50 strike, with overhead open interest exceedingly thin. Peak May put open interest, meanwhile, numbers 1,814 contracts at the nearer-the-money $7.50 strike.
VALE stock has been quite volatile the past several sessions, but if the stock can re-establish a base above $8, the bulls may have something to work with going forward.
Pfizer Inc. (PFE)
Options traders love rumors, and the latest dirt on Pfizer is that the company is the unnamed bidder for Swedish Orphan Biovitrum AB. SOBI, a specialist in medications for rare diseases, said it received a preliminary buyout offer on Monday, and while the company did not identify the bidder, speculation had the buyer as either Biogen Idec (NASDAQ:BIIB) or Pfizer.
An insider source, who chose not to be named for confidentiality reasons, ended the speculation, naming Pfizer as the bidder.
PFE stock has struggled a bit in recent trading after the company’s first-quarter earnings report fell flat with investors. The shares dipped more than 1% on Thursday, breaching short-term support near $34. Options traders were undeterred, however, sending 158,887 contracts across the tape, with 79% of that volume trading as call options.
The $34 strike remains a huge pivot point for options traders, with 44,502 put contracts located at this strike in the May series. Call open interest, meanwhile, is a bit out of the game at the moment, with peak call OI of 56,474 contracts at the out-of-the-money May $36 strike.
As of this writing, Joseph Hargett did not hold a position in any of the aforementioned securities.
