Selling pressure abated somewhat on Wall Street on Wednesday, as the major market indices closed flat on the session. The Nasdaq managed to eek out a 0.11% gain on the day, while the S&P 500 and the Dow Jones Industrial Average closed fractionally lower. Options traders took the opportunity to reinvest in calls, as the CBOE put/call volume ratio reversed course to arrive at 0.56. The 10-day moving average dipped to 0.64.
Among the most actively traded options on the day, Cisco Systems, Inc. (NASDAQ:CSCO) provided solid third-quarter earnings, but a lack of detail in the report has investors worried. Similarly, J C Penney Company Inc. (NYSE:JCP) provided stronger-than-expected first-quarter results, but guidance fell flat with investors. Finally, CSX Corporation (NYSE:CSX) attracted a flood of put volume after a hopes for a potential buyout offer were dashed.
Cisco Systems, Inc. (CSCO)
After the close last night, Cisco posted a third-quarter profit of 54 cents per share as revenue rose 5% year-over-year. While the results were largely in line with Wall Street’s expectations, the company offered little in the way of details driving sales on the quarter. As such, the stock is trading nearly 1% lower in premarket activity as stockholders await the company’s conference call to provide clarity.
Options traders appeared hopeful heading into the report. Volume soared to 273,495 contracts on the session, with 60% of the day’s activity falling on the call side of the tape. Looking at May open interest (which expires at the close of trading tomorrow), options traders are heavily focused on the at-the-money $29 strike and the overhead $30 strike, where 41,962 contracts and 45,830 contracts are open, respectively.
Given the stock’s trend lower in premarket trading, Cisco will have to clear things up significantly in its conference call if these CSCO May options are to finish in the money.
J C Penney Company Inc (JCP)
J C Penney also slipped into the earnings confessional after the close last night, leading similarly lackluster price action from JCP stock in premarket trading. The company posted a first-quarter loss of 55 cents per share on revenue of $2.86 billion, compared to the consensus estimate for a loss of 75 cents per share on $2.85 billion in revenue.
The stock is up sharply so far in 2015, adding nearly 35% year-to-date, and it looked like JCP was going to add to those gains last night, with the stock up nearly 1% in after hours trading. Heading into the open, however, JCP has slipped nearly 1%, retreating from resistance near the $9 level.
Once again, options traders appeared positive heading into the report. Total volume on the day exceeded 127,200 contracts, with fully 68% of the day’s activity trading as call options. JCP’s May open interest configuration shows a heavy preference for calls at the $9 strike, which sports peak OI of 46,590 contracts. On the put side, the $8.50 strike is king with 20,724 contracts open. If premarket weakness spills over into the open, these puts stand a better chance of finishing in the money.
CSX Corporation (CSX)
Shares of CSX Corporation had been on the march higher during the past several weeks, with the stock up roughly 17% since mid-April. Driving this strong price action were hopes that hedge fund manager Bill Ackman was targeting CSX for a buyout play in a consolidating railroad market. Those hopes were derailed at the Ira Sohn conference in New York yesterday, and Wall Street send CSX stock plunging more than 2.5% as a result.
Options traders piled on the puts in response. CSX option volume soared to 127,454 contracts on Thursday, with a hefty 87% of this volume trading as put options. In the soon-to-expire May series, the deep-in-the-money $37 strike is currently the most popular, sporting open interest of 21,663 contracts. Looking ahead to June, traders have set their sites on the out-of-the-money $33 strike, which is currently home to 10,197 contracts.
In premarket trading, CSX is trading fractionally lower.
As of this writing, Joseph Hargett did not hold a position in any of the aforementioned securities.
