Wall Street rebounded Monday, as stocks rallied amid flat action from the U.S. dollar; currency traders are holding firm ahead of a two-day meeting of the U.S. Federal Reserve.
Put activity in the options pits eased a bit, and the CBOE put/call volume ratio relaxed to a reading of 0.69, though the 10-day moving average ticked higher to 0.67. But the real interesting action came in top-10 trades such as Netflix, Inc. (NASDAQ:NFLX), Alibaba Group Holding Ltd (NYSE:BABA) and Salix Pharmaceuticals, Ltd. (NASDAQ:SLXP)
Netflix, Inc. (NFLX)
Arriving as the only stock from Monday’s options activity with a bias toward puts, shares of Netflix extended their March losses by 3.75% yesterday. On the month, NFLX stock is down more than 11%. Driving Monday’s losses was a bearish research note from Evercore downgrading NFLX to “sell” from “hold” and cutting its price target to $380 from $450. According to Evercore, the new net neutrality rules from the FCC will open the flood gates for Netflix competition.
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Options traders appeared to agree, with 56% of yesterday’s 96,668 contracts in volume crossing on the put side. Looking over short-term options activity for NFLX, the March $380 put is home to peak open interest, with 10,100 contracts currently residing at this soon-to-expire strike. By comparison, peak March call open interest totals just 2,767 contracts at the deep-out-of-the-money $500 strike.
In pre-market trading, NFLX stock is down roughly half-a-percent, putting pressure on technical support in the $420 region.
Alibaba Group Holding Ltd (BABA)
Shares of Alibaba rallied nearly 3.5% in Monday’s trading before settling for a gain of 2.61% on the day. BABA stock received a boost from an announcement by Chinese Premier Li Keqiang that the government was pledging to stimulate the Chinese economy. Chinese GDP growth has fallen 7.3% in the most recent quarter, and Keqiang said in a news conference that Beijing has room to nudge policies in order to provide an economic boost.
BAB stock options traders welcomed the news and the stock’s rally by sending 158,114 contracts across the tape. Some 55% of Monday’s volume traded on the call side. Currently, most of BABA’s March open interest is tied up in deep out-of-the-money call strikes, with rough 27,800 at the 105 strike and 40,365 at the $120 strike. With March expiration taking place on Friday, look for traders to roll some of these contracts down and out to later months.
Salix Pharmaceuticals Ltd. (SLXP)
Valeant Pharmaceuticals Intl Inc (NYSE:VRX) fired another shot in the bidding war for Salix Pharmaceuticals this week, boosting its bid for the company to $173 per share, or $11.1 billion, in an all cash deal. The move came in response to Endo International PLC’s unsolicited offer of $175 per share in cash and stock for Valeant. As a result, Endo has pulled out of the running.
Options activity spiked in the wake of the news, with 180,164 contracts trading on SLXP stock. Not surprisingly, 79% of Monday’s volume traded on the call side, with March $175 strike (sporting 10,411 contracts in open interest) now competing for top honors in the month. Peak March open interest still lies at the in-the-money $165 call, where 19,831 contracts reside.
Turning to April, the $160 and $175 contracts remain tops in terms of call open interest, with 57,315 contracts and 52,061 contracts open, respectively.
As of this writing, Joseph Hargett did not hold a position in any of the aforementioned securities.
