The major market indices ended a volatile day of trading mixed on Tuesday, with the usual suspects — China, the Federal Reserve and weak commodities prices — driving activity once again. Overall, the Dow Jones Industrial Average lead advancing issues with a gain of 0.3%, while the Nasdaq Composite shed 0.59% due to continued pressure on biotechs.
Volume edged higher on Tuesday, but didn’t stray too far from the past months’ average. On the day, the CBOE single-session equity put/call volume ratio remained in one-month high territory at 0.95, while the 10-day moving average held at 0.78.
In options activity, Netflix, Inc. (NASDAQ:NFLX) attracted a rise in call volume after the company announced a free Wi-Fi partnership with Virgin America Inc (NASDAQ:VA). Meanwhile, Apache Corporation (NYSE:APA) was targeted by a rather large puts-sell block in the October series, and Yahoo! Inc. (NASDAQ:YHOO) said it was pushing forward with its Alibaba Group Holdings Ltd (NYSE:BABA) spinoff despite tax clarity from the IRS.
Netflix, Inc. (NFLX)
Netflix announced yesterday that it has signed a deal with Virgin America for free Wi-Fi streaming for Netflix customers. The promotion continues through March 2, 2016, and mimics a similar deal between Amazon.com Inc. (NASDAQ:AMZN) and JetBlue Airways (NASDAQ:JBLU).
During the past week, NFLX stock has been pinned to the $100 region, where its 10-day and 20-day moving averages are currently perched. Naturally, options traders have gravitated to the area, with more than 4,100 calls and 3,100 puts currently open at the $100 strike in the weekly Oct 2 series.
Implieds for the weekly October series are pricing in a sizable move (north of 10%) for NFLX before the end of the week, with put options pricing trending steadily higher. Given NFLX’s tenacity in the $100 region for the past couple of weeks, short-term put buying on the stock seems like a risky strategy at this point.
Apache Corporation (APA)
APA stock has been driven steadily lower during the past several months as traders abandon the shares amid continued weakness in commodities prices. Elevated put volume should come as no surprise for this independent energy company, but APA saw a some rather unusual activity on Tuesday.
Overall, APA saw volume spike to a near-term high of 107,628 contracts, placing the stock on the top 10 most active options listing for the first time in more than a year. Even more unusual was the fact that nearly all of this volume was driven by one trade in particular.
According to data from Option Monster, 50,800 Oct $40 puts were bought for an ask of $1.13, while 50,800 Oct $42.50 puts were simultaneously sold for a bid of $2.01. Without more specific data, this activity appears to either be the closure of an existing bear put spread position or the roll up of a $40 put sell to a $42.50 put sell.
Yahoo! Inc. (YHOO)
Yahoo! said late on Monday that it was pushing ahead with its planned spinoff of its Alibaba holdings despite the fact that the IRS has declined to rule on the tax-free status of the deal. The news prompted a 2.4% spike for YHOO stock, which continues to trend lower under resistance at its 10- and 20-day moving averages.
Options activity was above average for YHOO stock, with 98,525 contracts changing hands on Tuesday. Furthermore, calls accounted for 61% of the day’s take, giving the session a bullish spin. As for weekly Oct 2 series open interest, traders have zeroed in on the $30 (2,349 contracts) and the $30.50 (2,152 contracts) calls so far, with the $27.50 put (1,707 contracts) also drawing attention.
As of this writing, Joseph Hargett did not hold a position in any of the aforementioned securities.
