The rollercoaster ride surged ahead on Wall Street on Tuesday, as traders flooded back into stocks following what appears to have been official intervention in the Chinese markets. Gains were strong across the board, with the major market indices adding roughly 2.5%. The Nasdaq Composite led the way with a jump of 2.7% on the day.
In options activity, volume hovered just above summer levels, as traders adopted a wait-and-see attitude with Wall Street’s latest whipsaw rally. Overall, the CBOE’s single-session equity put/call volume ratio plummeted to a reading of 0.66, as call traders looked to chase Tuesday’s rally, while the 10-day moving average hit a one-month low of 0.74.
On the equity options front, Twitter Inc (NYSE:TWTR) dropped nearly 3.5% amid Tuesday’s rally after the company’s CFO and venture division VP left for greener pastures. Meanwhile, Alibaba Group Holding Ltd (NYSE:BABA) took a 4.6% haircut following reports that second-quarter sales volume was likely to come in below expectations. Finally, Yahoo! Inc. (NASDAQ:YHOO) shareholders were spooked when the company announced that the IRS declined to issue a ruling on the BABA spinoff.
Twitter Inc (TWTR)
It’s hard not to think of the old adage about rats leaving a sinking ship when you hear the latest Twitter news. (Not that Twitter executives are rats or anything.) But when the the company, CEO-less since Dick Costolo left in June, sees its CFO and venture division VP join the list of those jumping ship, one has to wonder what is really going on over at Twitter.
Despite the news (and TWTR stock’s 3.5% plunge amid a broad market rally), options traders loaded up on Twitter calls on Tuesday. Overall, some 91,168 option contracts changed hands, with calls snapping up 64% of the day’s take. While there may be some speculation that TWTR stock will rebound once again from this setback, we could also be seeing increased short-selling, with calls being used to hedge those bets.
Looking at weekly Sep 11 series activity, call traders have zeroed in on the $30 strike, where 7,213 contracts reside, while the $28.50 and $28 strikes sport OI of more than 4,000 contracts each. On the put side, the $26, $26.50, and $27 strikes each have OI of more than 2,300 contracts.
Alibaba Group Holding Ltd (BABA)
BABA stock was another equity that didn’t participate in Tuesday’s rally. For Alibaba, the driver was a report that second-quarter sales volume would likely be down by a mid-single-digit pace. According to CEO Jack Ma, China was feeling a bit of an economic pinch for consumers, which could hit the company’s bottom line.
Unlike TWTR options traders, BABA traders opted heavily for puts. Volume for the stock jumped to 217,376 contracts, as puts accounted for 56% of the day’s total activity. With BABA trading just shy of $62, current peak weekly Sep 11 series put OI of 8,168 contracts at the $65 strike is trading solidly in the money. On the other hand, peak call OI of 5,834 contracts at the $66 strike is trading well out of the money.
Yahoo! Inc. (YHOO)
For the past several months, YHOO stock traders have operated under the assumption that the coming spinoff of Yahoo’s Alibaba holdings would be tax-free. So, it came as quite a shock to shareholders yesterday that the IRS has declined to issue a private ruling on the BABA matter that would have affirmed the spinoff’s tax-free status. Yahoo’s current stake in Alibaba is estimated to be worth more than $23 billion.
YHOO stock slipped more than 2% following the news, but options speculators appeared unperturbed, sending a wave of calls across the tape. Overall, 113,858 contracts traded on YHOO, with calls snapping up 72% of the day’s activity. As for the soon-to-expire weekly September 11 series options, there are a wealth of YHOO calls currently open at the $34 strike, totaling 10,017 contracts, while peak put OI for the series lies at the $31 strike with 5,829 contracts.
As of this writing, Joseph Hargett did not hold a position in any of the aforementioned securities.
