Wednesday’s Vital Data: Intel Corporation (INTC), Applied Materials, Inc. (AMAT) and Freeport-McMoRan Inc (FCX)

What the options are saying about INTC, AMAT and FCX

Wall Street was under pressure from mixed European and Chinese economic data on Tuesday, sending the major market indices broadly lower. Concerns about weak growth for the current quarter prompted a defensive posture among options traders, as the CBOE put/call volume ratio rebounded to a one-week high of 0.7.

With another earnings season just around the corner, options traders supply concerns for semiconductor firms and raw materials prices were telegraphed in Tuesday’s most active stocks in the options pits, including heavy attention for Intel Corporation (NASDAQ:INTC), Applied Materials, Inc. (NASDAQ:AMAT) and Freeport-McMoRan Inc (NYSE:FCX).

Wednesday’s Vital Data: Intel Corporation (INTC), Applied Materials, Inc. (AMAT) and Freeport-McMoRan Inc (FCX)

Intel Corporation (INTC)

Plagued by slowing demand for desktop and laptop PCs, Intel has been under pressure after slashing its first-quarter revenue expectations in mid-March. Add to this analyst concerns about semiconductor supplies, and INTC stock has become one of the most heavily shorted stocks trading on the Nasdaq.

By the numbers, some 144.5 million shares of INTC stock were sold short as of the most recent reporting period, accounting for roughly 3% of the stock’s total float. This shorting activity could explain the disconnect between the rise in call option open interest and INTC’s poor price action.

In other words, INTC options traders aren’t necessarily betting on a rebound, but, rather, are more likely using calls to hedge short positions on the stock. So, investors will want to take yesterday’s data — 73% of 133,539 contracts in volume traded on the call side — with a grain of salt.

Intel is slated to release its next quarterly report on April 14, so options traders have a few more weeks to ready themselves for an update on growth prospects.

Applied Materials, Inc. (AMAT)

Sticking with the semiconductor theme, short sellers appear to be backing away from Applied Materials. AMAT stock saw short interest levels fall by 80.4 million shares, or 3%, during the most recent reporting period, though the short-to-float ratio still stands at a healthy 6.6%. Unlike INTC, AMAT shares have held their ground during recent uncertainty within the semiconductor sector, bouncing around a center line at $25 while waiting for support at their 200-day moving average to catch up.

In the options pits, calls were extremely popular for AMAT yesterday, surging to 183,537 contracts, or more than five times the stock’s daily average. According to CNBC Options Action’s Mike Khouw, quite a bit of yesterday’s volume appears to be tied up in a single bull call spread.

Specifically, 25,000 June $27 calls were bought at the same time that 25,000 June $30 calls were sold — with an ask price of 46 cents, or $46 per pair of contracts. While it will require a 15% jump in AMAT stock, the maximum profit on this trade comes in at $2.54, representing a serious bullish bet on the equity.

Freeport-McMoRan Inc (FCX)

U.S. copper mining specialist Freeport-McMoRan dropped a bomb on shareholders this week, announcing that it was slashing its dividend by 84% to save cash amid plunging commodities prices. The dividend was cut from 31 cents per share to just 5 cents per share. As a result, FCX stock shed nearly 1% on Tuesday and is down almost another 1% in premarket trading this morning.

Despite the bad news, options traders appeared to stick to their guns on FCX stock. Overall, some 87,189 contracts traded on the equity, with 60% of Tuesday’s volume changing hands on the call side. That said, peak front-month open interest lies with the bears, as 9,615 contracts currently reside at the deep out-of-the-money April $16 put strike, while another 8,783 contracts are open at the April $17 put strike.

Put options might be in for a spike in volume over the short term if FCX breaks support at the $19 level, an area that is also home to the stock’s 10-day moving average.

As of this writing, Joseph Hargett did not hold a position in any of the aforementioned securities.

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