While traders’ collective eyeballs await the latest on Fed policy and Greek debt talks, bullish fingers stroked the buy key into the 50-day simple moving average in the S&P 500 on bargain-hunting of 0.55%.
Following an abrupt two-day selloff, a familiar buy-the-dip decision was reached by traders not requiring clarity as a green light to bargain hunt. An outcome on Greece remains up for grabs, but today should present fresh insights into Fed policy.
The FOMC will wrap up its two day meeting Wednesday afternoon, but not before a widely-expected change in its verbiage regarding the timing of its first rate hike in nearly a decade. Wall Street consensus views are for a hike during its September meeting with just 2 of 70 economists surveyed seeing a hike today.
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Amidst the lull, traders did show a knack for hedging and / or simply more speculative endeavors in Twitter Inc (NYSE:TWTR), Wisdom Tree Investments, Inc. (NASDAQ:WETF) and Hertz Global Holdings Inc (NYSE:HTZ).
Twitter Inc
Looking a bit closer at our unusual option volume leaders, Twitter saw more than 320,000 contracts change hands on roughly 2.75 times its daily average. Shares of TWTR finished only fractionally higher by 15 cents to $34.82, but the stock did witness a heavy volume reversal after striking fresh lows for 2015.
Possibly prompting the intraday shift toward bargain-hunting proclivities; MKM Partners downgraded TWTR shares to ” and slashed its fair-value estimate to $39 from $57. However, analysts may have rekindled Google Inc (NASDAQ:GOOGL) takeover optimism as part of their downgrade.
MKM Partners stated Google would be “the natural acquirer if there is one” as the company hasn’t been valuation-sensitive in the past and has shown more interest in long-term strategic synergy than concern over near-term dilution.
Call activity in TWTR stock led by roughly 2-to-1 over put trading with the largest pools of interest in the June call contract set to expire on Friday and July calls.
Roughly 10% of the day’s volume hit the at-the-money June $35 call and slightly out-of-money June $36 call. With much smaller open interest levels in both contracts, more than a few traders appear to be positioning for continued near-term follow-through in shares of TWTR.
Wisdom Tree Investments, Inc.
Wisdom Tree Investments, Inc. — the brain trust behind “smart beta” ETFs — received analyst favor from Jeffries as part of a larger “we like” list. The company also was given the thumbs-up on CNBC’s Halftime Report as having a great innovative product and the company a potential target for a larger asset manager.
On the options side, while shares of WETF traded higher by 2.67% to $22.69, it was the puts which garnered the lion’s share of interest with more than 90% of the day’s 78,000 contracts and near six-fold increase above its daily average.
Of particular interest, the out-of-money and near worthless June $20 and $21 puts saw combined volume of around 35,500, while the July $22 put traded about 25,000 contracts before closing at $1.10.
The bulk of the option activity in WETF is likely represented by a roll out into July. But with implieds remaining fairly stagnant, whether traders are selling more premium, extending their bearish bets or hedging a long stock position, is undetermined.
Hertz Global Holdings Inc
Lastly, Hertz saw option traders pile in both calls and puts on volume of nearly 70,000 contracts and about 700% its daily average. It appears some heavy closing of a June position may have been rolled out to September as similar volume in the June $22 call and June $19 put was spied in the September $21 call and $19 put.
A long or short strangle is typical of this type of volume, but with implieds fairly flat, my guess is a fence or risk reversal spread, wherein one contract is purchased and the other is sold, was established. If shares of HTZ are involved, the position is a collar.
Without the third side, the position is effectively a bullish or bearish play and the trader is betting on HTZ moving below or above the strikes, depending on which side was established.
Disclosure: As of this publishing, investment accounts under Christopher Tyler’s management have an existing hedged position in TWTR stock and its options. The information offered is based upon Christopher Tyler’s observations and strictly intended for educational purposes only; the use of which is the responsibility of the individual. For additional market insights and related musings, follow Chris on Twitter @Options_CAT.
