The major market indices reversed course once again Wednesday, as Wall Street whipsawed toward a gain of nearly 2% across the board after Tuesday’s roughly 3% plunge. Mediocre economic data appeared to be the guiding force for the rally, as the Fed’s Beige Book revealed continued economic growth, while non-farm payrolls data arrived on the weak side of expectations. All in all, the Nasdaq Composite led the way higher with a gain of 2.46%.
The rise in volatility has prompted a return to option volume on the CBOE, with activity breaking out of summer’s apathetic doldrums. Calls are also beginning to gain some favor again, as the CBOE’s single-session equity put/call volume ratio dipped further to a reading of 0.73. Additionally, the 10-day moving average finally broke its weeks-long uptrend, edging lower to 0.79.
Speaking of equity options activity, Dow Chemical Co (NYSE:DOW) made a rare appearance near the top of the the daily most active options listing after the company initiated the spinoff of its U.S. Gulf Coast Chlor-Alkali and Vinyl business. Meanwhile, Netflix, Inc. (NASDAQ:NFLX) stock recovered from an early drubbing after Hulu announced a commercial-free subscription option. Finally, Facebook Inc (NASDAQ:FB) gained ground and drew call activity after Mad Money analyst Jim Cramer touted the stock as not being dependent on China for growth.
Dow Chemical Co (DOW)
DOW stock gained a mere 1.7% on Wednesday. Despite underperforming the broader market’s gains, DOW saw a flood of speculative options activity. Specifically, DOW saw record volume of 226,624 contracts, with activity roughly split between puts and calls. For weekly Sep 11 series options, traders have focused on the $40, $44 and $46 strikes, each with OI of more than 1,000 contracts. Overall peak open interest lies at the Oct $50 strike, where 138,198 calls and 138,021 puts are currently open.
Driving the speculation is Dow Chemical’s plan to spin off its U.S. Gulf Coast Chlor-Alkali and Vinyl, Global Chlorinated Organics and Global Epoxy businesses. The first leg of this split began this week with Dow announcing an exchange offer for its chlorine division, and options traders appear to be angling to take advantage of arbitrage plays surrounding the split.
Netflix, Inc. (NFLX)
After getting dinged by Apple Inc. (NASDAQ:AAPL) and Amazon.com, Inc. (NASDAQ:AMZN) earlier this week, the last thing Netflix needed was another volley from yet another competitor. And yet, Hulu stepped out of the woodwork to announce an ad-free subscription option that heats up the tension between the two streaming rivals. Subscribers can now pay their standard $7.99 per month for limited commercials, or $11.99 per month for an ad-free subscription to Hulu.
NFLX stock plunged as much as 4% on Wednesday following the news, but the shares managed to bounce back alongside the broader market to close down just 0.33%. Option volume remained brisk on NFLX, with 332,324 contracts changing hands on Wednesday. Calls appear to be losing their luster, however, with puts accounting for 55% of yesterday’s volume.
Looking at next week’s Sep 11 series options, call traders are targeting the overhead $110 strike, where 2,458 contracts are currently open. Put traders, meanwhile, have zeroed in on the deep-out-of-the-money $80 strike, where 3,618 contracts are currently open.
Facebook Inc (FB)
Finally, Facebook received a vote of confidence from Jim Cramer on Wednesday. Cramer listed FB stock as his top pick amid the current China-driven market, Facebook’s average annual growth of 30% was impressive, and sees the company posting earnings of as much as $4 per share by 2017.
Options traders have long been bullish fans of FB stock, and Wednesday’s activity was no different. Some 261,000 contracts traded on FB yesterday, with calls snapping up 65% of the day’s take. Looking ahead to next week, we find that peak weekly Sep 11 series put open interest totals 6,080 contracts at the out-of-the-money $87 strike, while call traders have set their sights on the $104 and $107 strikes, which each sport OI of more than 5,100 contracts each.
As of this writing, Joseph Hargett did not hold a position in any of the aforementioned securities.
