Given the volatility of the past several weeks, the major market indices were relatively quiet on Thursday, posting average gains of roughly 0.6% across the board. That said, uncertainty ahead of the Fed’s monetary policy meeting next week was the likely driver for yesterday’s caution, with little else hitting the wire.
On Thursday, the Nasdaq Composite led the way higher with a gain of 0.84%, while the Dow Jones Industrial Average lagged with an advance of 0.47%.
With Apple Inc. (NASDAQ:AAPL) options traders now mostly positioned after this week’s flop of a press event, overall option volume declined sharply. Still, weekly September 11 series options expire at the close today, so an uptick in activity should be expected.
For Thursday, uncertainty drove the CBOE’s single-session equity put/call volume ratio to a two-week high of 0.77, while the 10-day moving average dipped to a two-month low of 0.73.
Turning to equity options news, Facebook Inc (NASDAQ:FB) saw another jump in call volume following a bullish note from Cantor. Meanwhile, Lululemon Athletica inc. (NASDAQ:LULU) stock was crushed despite beating second-quarter earnings expectations and lifting guidance. Finally, Oppenheimer initiated coverage on Tesla Motors Inc (NASDAQ:TSLA) with an “outperform” rating.
Facebook Inc (FB)
A perennial favorite among call option traders, FB stock was once again the center of attention on Thursday. Helping to drive options volume of 193,474 contracts, research firm Cantor reiterated its “buy” rating on FB stock with a target of $105 per share following the launch of Instagram ads. According to Cantor, the new ad push could rake in more than $1 billion over the next 12 months, with revenue accelerating in 2016.
As expected, Thursday’s options volume was call heavy, with the typically bullish bets accounting for 55% of the day’s take. Still, new short interest data may point to an alternate reason for the recent push for FB calls. According to data from ShortSqueeze.com, Short interest in FB rose by 11% during the most recent reporting period, hinting that at least some of the recent call addition for FB stock may have been hedges for fresh short positions.
Lululemon Athletica Inc. (LULU)
When you look at the numbers, Lululemon should have rallied on Thursday. The company posted Street-topping second-quarter earnings of 34 cents per share on revenue of $453 million, beating consensus estimates of 33 cents per share on sales of $445.76 million. Lululemon even boosted third-quarter and full-year guidance to a range of 35 to 37 cents and $1.89 to $1.92 per share, respectively.
However, despite the boost, guidance still fell short of Wall Street’s expectations for 43 cents per share in 3Q and $1.93 per share for the year. As a result, LULU was hit with a barrage of bearish analyst commentary, including a downgrade to “sell” at Evercore ISI. LULU stock responded by plunging more than 16% on Thursday.
Option volume surged to a near-term high for LULU stock, topping 138,000 contracts on the day. Calls won out in the end, snapping up 54% of the take, but we don’t know whether these were bets on a rebound or just hedges for new short positions.
Yesterday’s plunge has left some 2,100 calls at the weekly September 11 series $56 strike in the lurch, while the 2,287 puts at the same strike are now two points in the money. LULU is trading higher in pre-market activity, but it would take a significant rebound to save the $56 strike calls at this point.
Tesla Motors Inc (TSLA)
With the stock finishing just shy of flat on Thursday, you would be hard-pressed to tell that coverage on TSLA stock was initiated with an “outperform” rating and a $340 price target at Oppenheimer yesterday. Citing disruptive technology and market leadership, Oppenheimer placed a premium of nearly 37% on TSLA stock, saying that product delays are not that concerning given that Tesla’s customers are more focused on quality products.
Put and call option activity was split down the middle for TSLA stock on Thursday. Volume came in at an anemic 67,513 contracts, and only made the top ten most actives listing due to low overall volume on the day. Heading into weekly September 11 series expiration, TSLA is looking up at 1,468 call contracts at the $250 strike, with some 1,150 put contracts also in residence.
As of this writing, Joseph Hargett did not hold a position in any of the aforementioned securities.
