The major market indices ended a two-day slide Tuesday, ending roughly 1% higher across the board. Call options traders decided to take a breather, however, as the CBOE put/call ratio rebounded from yesterday’s two-week low of 0.41 to finish at 0.66, above its 10-day moving average.
Micron Technology Inc. (MU)
Shares of semiconductor and flash memory concern Micron Technology surged more than 9.5% on Tuesday after details emerged of the company’s new supply agreement with Inotera JV. Improving upon the prior agreement, where Micron purchased all of Inotera’s DRAM output at market prices, the new agreement allows Micron to buy at “a discount from market prices” for the rest of 2015 while setting lower prices in 2016 as well.
Responding to the positive news, options traders sent more than 194,000 contracts across the tape on MU stock, with 63% of those trading on the call side. Quite a bit of the activity was short-term in nature, with the February series of options attracting considerable volume at the $28.50, $30, $30.50 and $32 strikes. Note that all but the $32 strike closed in the money, hinting at a bit of lingering caution from MU stock options traders.
Technically, MU stock is still off more than 13% since topping out at $36.50 in early December. Yesterday’s rally pushed MU back above its 10-day and 20-day moving averages, but the shares are still staring up at resistance near 32, where the stock’s 50-day and 200-day moving averages are converging.
Qualcomm, Inc. (QCOM)
Calls were also quite popular with Qualcomm traders on Tuesday. Volume totaled more than 130,000 on the day, with some 73% of those contracts trading as QCOM calls. QCOM’s March series of options appeared to be the most popular on the day, with $67.50, $72.50 and $80 strikes all drawing heavy volume. Only the $67.50 strike finished in the money, pointing toward a degree of optimism in yesterday’s activity.
Speaking of optimism, a block of 1,425 weekly March 6 series call contracts traded at the $72.50 strike on Tuesday. With open interest totaling a mere 42 contracts, much of this activity is likely the initiation of a fresh position. The $72.50 strike is currently 1.25 points out of the money.
Why the rally and added attention in the options pits? Traders appeared to cheer the fact that Qualcomm has finally settled its anti-monopoly probe in China for $975 million. Many analysts are hailing this deal as a win for the company, as Qualcomm could have faced significant changes to its Chinese business operations.
Pfizer Inc. (PFE)
Finally, Pfizer continues to attract a wealth of options activity in the wake of its move to purchase Hospira, Inc. (NYSE:HSP), the biggest maker of injectable drugs, in a deal valued at $17 billion. The deal values HSP stock at $90 per share, a premium of roughly 39% to HSP’s close on Wed. last week. Investors have bid up PFE stock in the wake of the deal, sending the shares up more than 3% on Tuesday.
In the options pits, some 126,000 contracts changed hands, with puts slightly edging out calls with 55% of the day’s volume. Most of the activity appears to have taken place in the June series of options, with the $25, $26 and $27 strikes receiving special attention. That said, most of PFE’s options activity is likely arbitrage related, as traders attempt to take advantage of the stock’s movements during the HSP buyout.
As of this writing, Joseph Hargett did not hold a position in any of the aforementioned securities.
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