Another day, another moderate rally on hopes of a Greek debt deal. Wall Street continued its run of good fortune Tuesday, with the S&P 500 adding 0.45% to finish in the middle of the pack. The latest deal hinges on Greece approving tough economic measures by the end of the day today.
Options traders appeared to express a note of caution heading into today, as the single-session CBEO equity put/call volume ratio rose to 0.63. Still, the 10-day moving average continued its recent retreat, falling to 0.7.
In equity news, Tuesday was a day for takeover deals; both real and imagined. Heading up the list, Micron Technology, Inc. (NASDAQ:MU) received a $23 billion offer from Tsinghua Unigroup, while Twitter Inc (NYSE:TWTR) was the victim of a fake $31 billion buyout offer. Finally, Bank of America Corp (NYSE:BAC) options were active ahead of the company’s second-quarter earnings report.
Micron Technology, Inc. (MU)
MU stock jumped more than 11% on Tuesday after Micron received a $23 billion takeover offer from China-based Tsinghua Unigroup. While MU stock traders cheered the offer, analysts were quick to dismiss what they called a lowball, non-serious bid. In fact, the consensus valuation for Micron stands at $38 billion. Furthermore, with China involved, the potential security risks of a Micron takeover make a potential deal even more unlikely.
Options traders were not dissuaded, however, sending record volume across the tape of more than 334,000 contracts. The bulls were out in force for MU stock, as 68% of Tuesday’s volume changed hands on the call side.
Looking at July open interest levels, peak OI currently totals 35,165 contracts at the in-the-money $20 put strike, while 29,207 calls also call the July $20 strike home. With MU surging toward this level following yesterday’s buyout offer, we could see options headwinds force MU to take a breather this week before the stock offers a serious challenge to the $20 region.
Twitter Inc (TWTR)
TWTR stock traders and major financial TV shows were duped yesterday, after a fake $31 billion buyout offer for Twitter appeared on a fake Bloomberg website. Both Twitter and Bloomberg refuted the story, but not before TWTR stock spiked more than 8% on the “news.” TWTR eventually fell back to earth to close the day up roughly 2%.
Real or fake, speculation is speculation, and TWTR options traders jumped at the chance to bet on a potential takeover. Volume soared to a short-term high of 332,509 contracts, with calls accounting for a whopping 75% of Tuesday’s activity. Taking a closer look at July open interest reveals peak OI at the out-of-the-money $40 call strike, totaling 25,965 contracts, with another 24,078 calls open at the $37 strike.
Bank of America Corp (BAC)
BofA options traders geared up for the company’s second-quarter earnings report yesterday by sending more than 281,000 contracts across the tape. Volume was a bit lower than normal for BAC, but call activity was higher than usual, accounting for 70% of Tuesday’s activity. Call traders appear to have been the smart money, as Bank of America shares are up nearly 3% in premarket trading.
Driving BAC stock this morning, Bank of America reported that Q2 earnings more than doubled year-over-year. Profits came in at 45 cents per share, well above expectations for 36 cents. The results were helped in year-over-year comparisons due to a $4 billion litigation charge taken in 2014.
Checking in on July open interest levels, peak call OI totals 112,560 contracts at the $17 strike, which is currently trading in the money. Meanwhile, peak put OI of 569,656 contracts also resides at the $17 strike. With BAC stock trading north of these levels heading into the open, the shares should have little in the way of short-term resistance until approaching the $18 area.
As of this writing, Joseph Hargett did not hold a position in any of the aforementioned securities.
