Wall Street is betting big on a “stay” vote from U.K. voters on the Brexit referendum.
U.S. stock futures are soaring in relief after another poll revealed that those U.K. voters wishing to stay in the EU still outnumbered “leave” voters. That said, polling remains close, with the “stay” vote only garnering 52%.
Against this volatile backdrop, Dow Jones Industrial Average futures have soared 161 points, or 0.91%, with S&P 500 futures up 0.93% and Nasdaq-100 futures rising 0.99%.
While stock traders are practically “all in” on the U.K. remaining in the EU, options traders remain reserved. Overall, volume was average on Wednesday, with 13.8 million calls and 12.8 million puts crossing the tape.
Instead of focusing on stocks, however, options traders zeroed in on ETFs — a sign that traders are seeking out protection. The most popular ETF remains the SPDR S&P 500 ETF Trust (NYSEARCA:SPY), which saw nearly seven million contracts trade on Wednesday.
Turning to the CBOE, the single-session equity put/call volume ratio continued higher to 0.77, while the 10-day moving average hit another one-month high of 0.72.
In equity option news, Tesla Motors Inc (NASDAQ:TSLA) and SolarCity Corp (NASDAQ:SCTY) were front and center for options traders on Wednesday after Tesla said it was buying SolarCity for $2.8 billion — Elon Musk is CEO for Tesla and the biggest shareholder for SolarCity. Elsewhere, Mondelez International Inc (NASDAQ:MDLZ) attracted some rather unusual options activity after renewing its marketing partnership with Facebook Inc. (NASDAQ:FB).
Tesla Motors Inc (TSLA)
TSLA stockholders made their opinion of the SolarCity deal plain yesterday, smacking Tesla stock for a 10.45% loss on the day. With Tesla CEO Elon Musk also serving as SolarCity’s chairman of the board and its biggest shareholder, the deal has raised questions over Musk’s real intentions with the deal — especially considering SolarCity’s debt and growth issues.
Options traders were quick to speculation on the deal, with more than 587,000 contracts changing hands on TSLA on Wednesday. In keeping with the theme of skepticism, calls and puts were nearly evenly split on TSLA, with puts attracting 52% of the day’s take. Near-term put open interest rose sharply as a result, sending TSLA’s June/July put/call open interest ratio skipping higher to 0.79.
TSLA options traders should expect this deal to raise more concerns going forward, with TSLA struggling to reclaim the $200 mark anytime soon.
SolarCity Corp. (SCTY)
After surging more than 12% following the initial news, SCTY stock settled on a gain of just 3.26% following Tesla’s $2.8 billion takeover bid. SCTY has been a poor-performing stock for some time, shedding more than 70% since the beginning of 2014. The company is plagued with flagging sales and a high debt load, making the Tesla buyout a bit of a surprise, even for SCTY stockholders.
The same level of disbelieve (or pragmatism) displayed in Tesla’s options activity was also apparent in SCTY’s volume on Wednesday. Total volume came in at 261,000 contracts, with puts snapping up 60% of the day’s take. Pessimism is also considerably higher among near-term SCTY options traders, with the stock’s June/July put/call OI ratio coming in at 0.92.
With the TSLA deal on the books, options activity for SCTY will likely turn toward arbitrage, with rising call volume looking to take advantage of the coming buyout.
Mondelez International Inc (MDLZ)
Mondelez renewed its global strategic partnership with Facebook yesterday. The deal looks to improve Mondelez’s online marketing campaign through messaging and will use Facebook’s new data tool, Audience Insights (API).
The renewal was widely expected for Mondelez, but it still sparked a considerable degree of options attention, including a rather unusual, and large, August put/call strategy.
In total, 145,000 contracts traded on MDLZ on Wednesday, with activity split nearly down the middle between puts and calls. The most interesting activity, however, was highlighted by Trade-Alert.com data.
Specifically, a block of 33,000 August 19 series $60 strike puts traded at the ask price of $16.01, while a block of 33,000 August 19 series $60 strike calls crossed simultaneously for $0.01 — likely the bid price. The total debit for the trade was $16 even, or $1,600 per pair of contracts.
As of this writing, Joseph Hargett did not hold a position in any of the aforementioned securities.
