Anticipation ahead of the Federal Open Market Committee meeting left the major market indices mixed Tuesday, with the Dow down sharply while the Nasdaq found positive territory. Options traders’ preference for puts rebounded on the day, with the CBOE put/call volume ratio rising to 0.74, driving the 10-day moving average higher to 0.68.
There were plenty of familiar faces among the top 10 most active stocks, including Apple Inc. (NASDAQ:AAPL) and Facebook Inc (NASDAQ:FB). Today we’ll look at the significance of the options action in AAPL and FB, as well as MGM Resorts International (NYSE:MGM).
Apple Inc. (AAPL)
A longtime favorite among options traders, Apple was the center of more speculation Tuesday. According the infamous “people familiar with the matter,” Apple is developing an online TV streaming service through its Apple TV set-top box.
The service is expected to be what the industry has taken to calling a “skinny bundle,” focusing on just 25 channels to slim down the 500-plus channels currently offered by cable and other nationwide providers. Analysts expect Apple’s streaming TV service to look something like the Sling TV service currently being offered by Dish Network Corp. (NASDAQ:DISH).
While volume was below average for AAPL stock options, nearly 840,000 contracts still changed hands. The trend toward calls remained unchanged, with 68% of Tuesday’s activity crossing on the call side. AAPL options activity continues to be focused on the soon-to-expire March series, though you should expect to see open interest here begin to dwindle as traders being rolling out their positions to back months or taking profits off the table.
Facebook Inc (FB)
Facebook stock was also a favorite among call options traders on Tuesday, as investors reacted to a “buy” initiation at Brean Capital, which set its price target at $96. Facebook also announced yesterday that it was adding the ability to digitally transfer money via its Messenger app, allowing users to send money to other Messenger users. According to Facebook, the service will be free of service charges and should roll out to users in the “coming months.”
Options volume on FB stock swelled to an above average 226,129 contracts, with 72% of those trading as call contracts. The out-of-the-money March 80 strike continues to be the most popular among speculative traders, with 72,344 contracts in residence. Looking out to the April series, open interest at the $80 strike balloons to 113,814 call contracts, with 86,805 puts contracts also calling the 80 strike home.
FB stock has struggled with long-term resistance in the $80 region, so an upside breakout above this level could bring bullish technical traders into the mix. In after-hours trading last night, FB shares edged fractionally higher to rest at $79.75.
MGM Resorts International (MGM)
Shares of gaming concern MGM Resorts International soared roughly 10.6% on Tuesday, with investors cheering reports that an activist investor was suggesting the company spin off its real estate assets into a REIT. Specifically, hedge fund manager Jonathan Litt of Land & Buildings Investment Management believes that MGM could save on taxes if the company followed the lead of other gaming companies, like Penn National Gaming (NASDAQ:PENN) and Pinnacle Entertainment (NYSE:PNK).
MGM stock options traders apparently liked the idea, with 52% of the 155,346 contracts in volume crossing the tape as calls. While March options continue to see activity for MGM, the April series is starting to heat up. Most interesting is what appears to be spread activity at the April $22 and $26 call strikes, which both sport open interest in excess of 6,300 contracts — peak accumulations for this back-month series.
A break above $22 could be huge for MGM, as this area is not only home to short-term technical resistance for the shares, but the stock’s 200-day moving average is also descending into the region. MGM hasn’t closed a session above this trendline since the first half of last year.
As of this writing, Joseph Hargett did not hold a position in any of the aforementioned securities.
