The major market indices began the week on shaky footing following an extended holiday weekend. Wall Street was broadsided with fears of a sooner-than-anticipated Fed rate hike following a string of strong economic reports. For its part, the S&P 500 shed more than 1%, sending the CBOE Volatility Index (VIX), the so called “fear” index, soaring 16% on the day.
Options traders were in near full retreat, with the CBOE put/call volume ratio jumping to a one-month high of 0.74. The 10-day moving average edged higher to 0.63.
Taking a look at Tuesday’s most actives, Apple Inc. (NASDAQ:AAPL) stock fell more than 2% but remained a favorite among call option traders as Cowen & Company lifted its price target on the shares. Bank of America Corp. (NYSE:BAC) shares saw similar action, falling roughly 1.5% even after Vetr upgraded the BAC stock to “buy” from “hold.”
Finally, Time Warner Cable Inc. (NYSE:TWC) shares soared more than 7% after Charter Communications, Inc. (NASDAQ:CHTR) launched a $55 billion takeover bid for the company.
Apple Inc. (AAPL)
In a research note to clients on Tuesday morning, Cowen & Company boosted its price target on AAPL stock to $140 per share from $135 while maintaining its “overweight” rating on the shares. According to the brokerage firm, Apple shares are in a consolidation period, but should experience additional upside due to a strong cycle for the iPhone 6 and 6 Plus.
In options activity, perennially call-happy AAPL options traders did not waver on Tuesday even though AAPL stock shed 2.2% on the day, dipping back below the contentious $130 mark in the process. Overall, 1.15 million contracts traded on AAPL on Tuesday, with 60% of the session’s volume crossing on the call side.
AAPL options traders remain optimistic that the stock will eclipse $130 in short order, as the 130 through 135 call strikes in the weekly May 29 series are all quite popular. Peak open interest lies at the $132 call strike, totaling 28,839 contracts, while the $130 arrives at a close second with OI of 27,780 contracts.
In premarket trading, AAPL stock is up fractionally and could challenge the $130 level in today’s activity.
Bank of America Corp (BAC)
Traders were similarly negative on BAC on Tuesday, despite the stock receiving a bullish analyst note from Vetr. In a research report released yesterday morning, Vetr upgraded BAC stock to “buy” from “hold,” issuing a price target of $17.69 per share. According to data from Thomson/First Call, the consensus price target for BAC rests at $18 per share, while the stock has garnered 19 “buy” ratings, 10 “holds” and two “sells.”
Options activity was below average for BAC on Tuesday, though 270,000 contracts still changed hands on the stock. What’s more, options traders were more or less split on the issue, with just 52% of Tuesday’s volume trading as call contracts. On the weekly front, the May 29 series $15.50 put remains top dog in terms of open interest, with 24,974 contracts currently in residence.
On the call side, BAC’s weekly May 29 series $17 strike is home to some 18,600 contracts. With little in the way of OI above this call strike, it appears that traders aren’t expecting much from BAC stock over the short term.
Time Warner Cable Inc (TWC)
Fresh off the failed takeover bid from Comcast Corporation (NASDAQ:CMCSA), Time Warner Cable stock surged more than 7% on Tuesday as a new suitor emerged. Charter Communications placed an offer of $55 billion on the table for TWC, $10 billion higher than Comcast’s previous offer. The buyout would make Charter the second largest cable company in the U.S., if the deal receives approval from the FCC.
Option volume on TWC stock spiked to a near-term high for the shares, with 110,955 contracts crossing the tape on Tuesday. That said, speculation appeared mixed, with just 51% of the day’s volume trading on the call side. While Charter’s offer values TWC at $195 per share, options traders have yet to push call OI much beyond the $170 strike.
Specifically, peak June call OI currently totals 12,277 contracts at the in-the-money $170 strike, while another 11,531 contracts are open at the deep-in-the-money June $160 strike. Look for activity to pick up at the $180 through $195 strikes as more details of the deal emerge.
As of this writing, Joseph Hargett did not hold a position in any of the aforementioned securities.
