Stocks rebounded on Wednesday, as the major market indices closed near record highs driven by gains in the tech sector. In fact, the Nasdaq logged its third record-high close yesterday, adding 1.47% to finish north of 5,100. Options activity whipsawed on the day, as the the CBOE put/call volume ratio plunged from Tuesday’s one-month high of 0.74 to a two-month low of 0.54. The 10-day moving slipped to 0.63.
Taking a look at Wednesday’s most active options, Michael Kors Holdings Ltd (NYSE:KORS) attracted record options volume after reporting a 6.7% decline in same-store sales. Broadcom Corporation (NASDAQ:BRCM) saw heavy call volume on early news of a buyout from Avago Technologies Limited (NASDAQ:AVGO). Finally, with no discernible headline news, shares of MannKind Corporation (NASDAQ:MNKD) have gone on a two-day, 16.6% tear higher, sparking a flood of options volume.
Michael Kors Holdings Ltd (KORS)
Upscale retailer Michael Kors offered up fourth-quarter results yesterday that were just slightly out of line with Wall Street’s expectations. Earnings of 90 cents per share were a penny shy of the consensus, while revenue of $1.04 billion, which rose 18%, was a hair below targets for $1.08 billion. However, an unexpected 6.7% year-over-year decline in same-store sales sparked a massive selloff in KORS stock.
Record options volume of 203,359 contracts traded on KORS yesterday. Surprisingly, however, 52% of that volume traded as call options, either due to hedges for newly initiated short positions or as a bet on a rebound for KORS stock.
Looking at the June options series, peak open interest currently totals 19,012 contracts at the deep out-of-the-money $70 strike — though most of this OI was likely in place before yesterday’s plunge. On the put side, June options traders have singled out the in-the-money $60 strike, where 8,712 contracts currently reside.
Broadcom Corporation (BRCM)
BRCM stock was buzzing with takeover talk yesterday, as reports surfaced that Broadcom was in talks to be acquired by Avago Technologies. Details on the deal were announced this morning, with Avago offering $37 billion in cash and stock for BRCM, valuing the company at $77 billion. The combined company is expected to have total annual revenue of roughly $15 billion.
Naturally, options volume surged to short-term record levels for BRCM stock, with 155,662 contracts trading on the shares. Furthermore, calls were the investment vehicle of choice, accounting for 72% of Wednesday’s volume.
Activity should be brisk today, especially among the highly speculative, and soon-to-expire, weekly May 29 series. Currently, peak May call open interest totals 6,497 contracts at the overhead $60 strike, while another 5,090 call contracts reside at the in-the-money $55 strike.
MannKind Corporation (MNKD)
Aside from its shear velocity, the only notable thing about MNKD stock’s rally over the past two days is the distinct lack of headline news. The shares have surged nearly 16.6% since Tuesday morning, pushing the stock past former resistance at its 50-day moving average.
This technical breakout, which occurred Tuesday morning, may be part of the cause for MNKD’s follow-through buying spree. Furthermore, a short-squeeze may also be a driver, with 112.9 million shares, or 12% of the stock’s total float, reportedly sold short as of the most recent reporting period.
Not ones to ignore a good rally, options traders piled into MNKD calls on Wednesday. Roughly 72% of the 132,907 contracts traded on MNKD crossed the tape as calls yesterday. Peak call open interest levels for MNKD are all currently in the money, with 4,153 contracts at the weekly May 29 series $5 strike, while some 2,302 calls are open at the June 5 $5 strike.
As of this writing, Joseph Hargett did not hold a position in any of the aforementioned securities.
