The major market indices were flat Tuesday, with the S&P 500 the lone index to find positive territory on the day. While Monday’s selloff abated, there was little in the way of drivers for a bounce-back rally. Once again, options traders were evenhanded even as volume continued to recover. The CBOE put/call volume ratio came in at 0.61 for the third-consecutive session, while the 10-day moving average dipped to a two-week low of 0.6.
In equity news, Micron Technology, Inc. (NASDAQ:MU) was smacked lower once again after analysts at Drexel Hamilton downgraded the shares. Alibaba Group Holding Ltd (NYSE:BABA) was also the target of analyst ire, as Macquarie cut its price target on BABA stock. Finally, Yahoo! Inc. (NASDAQ:YHOO) still can’t shake concerns that the IRS may intervene in its plans for a tax-free spinoff of its BABA holdings.
Micron Technology, Inc. (MU)
MU stock has been in near free fall since the beginning of June, shedding more than 10% in the past week. Analysts at Drexel Hamilton piled pressure on MU on Tuesday, downgrading the stock to “sell” from “hold” due to falling DRAM prices. The brokerage firm also lowered its price target to $20 per share — a discount to yesterday’s close at $25.19.
Options activity was brisk on MU yesterday, with volume swelling to more than 143,000 contracts. Call options were the most popular on the session, comprising roughly 66% of Tuesday’s activity. That said, short-term puts have really taken off for MU, with peak put open interest in the weekly June 12 series totaling 5,942 contracts at the in-the-money $26 strike. On the call side, peak open interest totals just 3,685 contracts at the deep out-of-the-money $28.50 strike.
Yahoo! Inc. (YHOO)
In mid-May, YHOO stock was hit with a wave of panic selling as rumors spread that the company’s coming spinoff of its Alibaba holdings would not be as tax-free as Yahoo was promising. Yahoo immediately quelled those fears, and the stock recovered, but significant doubt still lingers on Wall Street, and some analysts think that the potential for IRS intervention still is real and needs to be priced into YHOO stock.
Option volume wasn’t all that impressive for YHOO on Tuesday, with just 89,619 contracts changing hands, but it was enough to get the shares on yesterday’s most active options listing. Calls nudged out puts as the most popular contracts on the day, accounting for 56% of YHOO’s option volume on Tuesday.
Taking a look at weekly June 12 series activity, the overhead $43.50 and $44 call strikes are quite popular, sporting open interest of 2,136 contracts and 2,301 contracts, respectively. If I had to guess, I would say that this activity appears to be spread-related, though whether it’s a bull or bear call spread is impossible to tell without additional information — my guess would be bear call spread (or credit spread) given the growing short-term technical resistance for YHOO.
Alibaba Group Holding Ltd. (BABA)
Alibaba was pressured on Tuesday after analysts at Macquarie reiterated a “neutral” rating on BABA stock and cut its price target to $92 from $105. The brokerage firm cited uncertainties from a “structural shift” in the firm. BABA could see additional pressure this morning after MSCI Inc (NYSE:MSCI) decided to defer adding China’s mainland-listed shares to its global benchmark index.
As a result of the negative analyst commentary, BABA stock has dipped below the $90 level for the first time since mid-May. Tuesday’s option activity on the shares appeared to suggest that BABA will recover quickly, with calls eating up 68% of the 139,313 contracts that traded yesterday.
The weekly June 12 series $90 strike call is currently the second-most popular short-term contract for BABA, with open interest arriving at 5,954 contracts. The most popular by a wide margin is the $92 call strike, where 11,971 contracts currently resided.
As of this writing, Joseph Hargett did not hold a position in any of the aforementioned securities.
