The major market indices finished mixed on Tuesday, with the Dow Jones Industrial Average closing fractionally higher, while the Nasdaq Composite fell 0.69%. Biotechs continued to weigh on the Nasdaq, as scrutiny over drug prices continued to intensify in Washington, while a rally in crude bolstered blue chips.
Volume on the CBOE came in below average yesterday, though calls remained a favorite of short-term investors. Overall, the CBOE single-session equity put/call volume ratio rebounded from yesterday’s multimonth low to perch at 0.68, while the 10-day moving average held at 0.76.
Taking a closer look at equity options activity, General Electric Company (NYSE:GE) saw a flurry of call option activity Tuesday as traders rushed to tag along with a $2.5 billion investment in the blue-chip by hedge fund Trian. Elsewhere, call-option favorite Facebook Inc (NASDAQ:FB) saw optimism falter after an European Union court ruled against the company regarding the handling and privacy of user data. Finally, Exxon Mobil Corporation (NYSE:XOM) was also call-heavy on Tuesday after crude oil prices jumped roughly 4%.
General Electric Company (GE)
While GE is a long-time favorite of buy-and-hold investors, the stock saw unusually heavy short-term call option activity on Tuesday. More than 276,000 contracts changed hands on GE, with calls accounting for 60% of the day’s volume as traders reacted to news that hedge fund Trian unveiled a $2.5 billion investment in the company. According to the hedge fund, it invested in GE because “it is undervalued and under appreciated by the market.”
Weekly Oct 9 series open interest is quite call-heavy, with peak OI totaling 11,013 contracts at the in-the-money $26.50 strike. Furthermore, the $27 strike (5,379 contracts), $27.50 strike (6,256 contracts), and the $28 strike, (2,064 contracts) have all been hotbeds of activity so far this week.
GE’s recent rally has pushed the stock above all of its short-term daily moving averages, with the shares now staring up at long-term resistance at the $80 level. Weekly Oct 9 series OI doesn’t suggest expectations that GE will eclipse this level this week, though the shares have a bit more room to advance before hitting that potential cap.
Facebook Inc (FB)
Facebook’s typically bullish sentiment outlook among options traders took a hit on Tuesday. While calls still accounted for a majority (58%) of yesterday’s volume of 205,000 contracts, these typically bullish bets were less active than usual for FB.
An unfavorable ruling by an EU court created the stumbling block, ruling that the “Safe Harbor” pact be overruled because European’s data was not secure once it hit U.S. data centers. In other words, Facebook is now forced to immediately adopt more conservative data sharing policies or risk investigation and potential punishment by EU regulators.
Returning to FB options data, the weekly October 9 series $94 and $95 strikes will be worth keeping an eye on. Currently, the $95 strike is home to peak call OI in the series, totaling 8,648 contracts, while the $94 strike sports OI of 7,475 contracts. With FB struggling to make headway this week, and resistance building at $95, there could be more than a few bear put credit-spreads open at the weekly $94/$95 strikes.
Exxon Mobil Corporation (XOM)
Exxon stock has risen more than 5% since Friday, bolstered by rising crude prices and a weakening U.S. dollar. In fact, crude prices soared roughly 4% on Tuesday after the U.S. lowered its output forecasts. XOM looks technically strong at the moment, coming off a weeks-long basing period in the $71-$72 region and breaking out above all of its major short-term moving averages save its 200-day trendline.
Options traders appear to be chasing the rally, as call volume swelled to account for 86% of yesterday’s volume of 169,690 contracts. For the immediate-term, weekly October 9 series open interest is focused at the in-the-money $75 strike call (3,041 contracts) and the out-of-the-money $74 strike put (4,576 contracts). That said, OI is beginning to build at the $80 strike call, where 1,399 contracts are currently open.
As of this writing, Joseph Hargett did not hold a position in any of the aforementioned securities.
