Wall Street is bouncing back from a mixed Tuesday finish this morning, as U.S. stock futures are headed higher in premarket trading.
At last check, futures on the Nasdaq Composite, the Dow Jones Industrial Average, and the S&P 500 Index were up about 0.3% across the board on solid global economic data and merger activity from Anheuser Busch Inbev SA (NYSE:BUD) and SABMiller.
Option volume was strong on Tuesday, with General Electric Company (NYSE:GE) leading the way on impressive volume of more than 2 million contracts — most of which are likely arbitrage related. Overall, puts continued to gain traction on Tuesday, with the CBOE single-session equity put/call volume ratio advancing to a reading of 0.8. As a result, the 10-day moving average was pulled higher to 0.66, extending its rebound from last week’s four-month low.
Turning toward equity options activity, SunEdison Inc. (NYSE:SUNE) made a rare appearance on the top 10 most active options listing after a poor earnings report raised debt concerns for the alternative energy firm. Elsewhere, MannKind Corporation (NASDAQ:MNKD) drew heavy call volume as traders attempt to call a bottom to the stock’s most recent earnings-driven selloff. Finally, Tesla Motors Inc. (NASDAQ:TSLA) was pressured after Morgan Stanley raised concerns that the company would burn through more cash than expected through the end of the year.
SunEdison Inc. (SUNE)
SUNE stock plunged 22% on Tuesday, despite the shares initially trading higher at the open. Wall Street reacted to weaker-than-expected earnings, with traders focusing on rising debt (which ballooned to $11.67 billion in the third quarter), stagnant revenue, and a high dividend at SunEdison’s yeildco TerraForm Power Inc. (NASDAQ:TERP). In short, with little in the way for growth potential, SUNE stockholders were left wondering where the company goes from here.
This uncertainty was reflected in SUNE’s options activity on Tuesday. While volume surged to a near-term high of 205,338 contracts, activity was split near evenly between calls (57%) and puts (43%). Over the short-term, however, calls are dominating the landscape, with more than 9,000 contracts open at both the weekly November 13 series $7.50 and $8 call strikes. On the put side, the $6.50 and $6 strikes sport OI of 9,652 contracts and 6,786 contracts, respectively.
MannKind Corporation (MNKD)
MNKD stock has been a disappointment to many shareholders over the past year, and the latest MannKind earnings report has all but solidified many bears’ fears.
The company’s quarterly report showed weaker-than-expected sales for Afrezza and higher-than-expected cash burn for the quarter. Adding to MNKD stockholder woes, MannKind said it plans on selling up to 50 million shares to Israeli hedge funds to raise cash — a move that could further dilute the stock.
MNKD options traders appear to be unperturbed, however. On Tuesday, volume swelled to 107,253 contracts, with calls snapping up a hefty 84% of the day’s take. Taking a look at weekly November 13 series options, traders are currently focused on the $2.50 and $2 strike puts, where 1,908 contracts and 1,685 contracts are open, respectively. That said, call OI is building at the $3 and $3.50 strikes, as traders look for a short-term oversold bounce from MKND.
Tesla Motors Inc. (TSLA)
TSLA was another struggling stock with high option volume on Tuesday. Shares dipped nearly 4% yesterday after Morgan Stanley issued a somewhat bearish outlook for Tesla. Specifically, Morgan Stanley noted that it expected Tesla to spend more cash reserves than expected through the end of fiscal 2015, with fourth-quarter and 2016 deliveries expected to come in short of projections.
TSLA options traders offered up a mixed reaction on Tuesday. Volume came in at 102,932 contracts, with activity split almost evenly between puts (45%) and calls (55%). In terms of OI, puts are winning among short-term options traders. In the weekly Nov. 13 series, the $205, $210 and $215 strikes all sport OI in excess of 2,200 contracts, while only the $240 and $250 call strike enjoy such a designation.
As of this writing, Joseph Hargett did not hold a position in any of the aforementioned securities.
