The major market indices headed lower on Tuesday, as a potential government shutdown and renewed Fed interest rate chatter swept over Wall Street. On the day, the Dow Jones Industrial Average lagged losses with dip of 1.09%, while the Nasdaq Composite led the way lower with a drop of 1.5%.
Another light-volume session saw put volume return to the CBOE on Tuesday, as options traders followed the market lower. Overall, the CBOE’s single-session equity put/call volume ratio rebounded to plunged to a one-week high of 0.8, while the 10-day moving average edged higher to 0.77.
On the equity front, Facebook Inc (NASDAQ:FB) saw call volume falter after Belgian privacy watchdogs sought changes in the company’s privacy policies. Meanwhile, Petroleo Brasileiro SA – Petrobras (NYSE:PBR) was flooded with put activity on Tuesday as traders reacted to falling oil prices and a plunge in the Brazilian real. Finally, United States Steel Corporation (NYSE:X) also saw a wave of put volume following reports of a third consecutive month of declining global steel production.
Facebook Inc (FB)
Traders were looking for reasons to sell on Tuesday, and a concerted push by privacy watchdogs in Belgium provided FB stockholders with an excuse yesterday. The group is pushing a European judge to not be intimidated by Facebook in their push to have the U.S. company change its privacy laws to comply with local law. FB currently is the target of several privacy probes by European regulators, and the Belgian case could set the tone for future dealings.
Option volume was elevated for FB stock on Tuesday, with 323,845 contracts changing hands on the issue. Facebook typically is call heavy in daily option volume, though activity dropped to about 57% of daily activity yesterday. With FB trading south of $95, the 6,687 call contracts at the weekly Sep 25 series $95 strike could create some headwinds heading into Friday’s expiration. Additionally, there are another 10,107 calls open at the $96 strike.
On the put side, traders have loaded up on Sep $90 strike contracts, with OI totaling 11,405 contracts. FB has shown technical support at $90 in recent trading, though broad-market volatility could still put this region in jeopardy — $90-strike put sellers should be cautious.
Petroleo Brasileiro SA – Petrobras (PBR)
PBR stock continued its string of losses on Tuesday, with the shares falling more than 5.5% on the day. With oil prices continuing to fall, and the Brazilian real hitting an all-time low against the U.S. dollar, PBR’s outlook remains poor despite the shares hovering just above potential technical support near $4.
While low-single-digit stocks are typically shunned by options traders — since there is little in the way of downside left to be had — this fact hasn’t slowed put volume for PBR. Volume was well above average for the stock on Tuesday, with 190,871 contracts changing hands. What’s more, puts snatched up 73% of the day’s take.
With Tuesday’s plunge, PBR is now trading well below peak call OI of 4,782 contracts in the weekly Sep 25 series. Furthermore, the 2,004 put contracts open at the $4.50 strike are now trading solidly in the money and could see some profit taking should signs of a rebound emerge.
Finally, there are 1,713 puts now located at the Sep $4 strike. Put sellers at this strike have a risky shot of holding their premiums through expiration if technical support in the region holds.
United States Steel Corporation (X)
News of a third-straight monthly decline in steel production was not what X stockholders wanted to hear on Tuesday. According to the World Steel Association, output declined 3% year-over-year in August, with slack demand from China driving production lower. With the combined weight of weakening steel prices and a strengthening U.S. dollar, X stock was driven more than 8% lower on Tuesday.
The plunge brought put traders out of the woodwork for X. Volume leaped to a record short-term high for the shares, totaling 184,520 contracts. Additionally, puts accounted for some 86% of the day’s activity. That said, weekly September 25 series put OI is relatively low. Specifically, peak September put OI totals just 1,366 contracts at the at-the-money $12 strike. By comparison, the September $12 through $14.50 strikes all sport call OI of more than 1,100 contracts, with 2,423 calls open at the $13.50 strike alone.
As of this writing, Joseph Hargett did not hold a position in any of the aforementioned securities.
