The major market indices finished flat on Tuesday, as hopes surrounding a Greek debt deal quickly evaporated. Still, stocks closed largely in positive territory on Wall Street, with the S&P 500 managing a fractional gain on the session.
Options volume remained on summer vacation, with activity holding level with the past month’s average. Overall, the CBOE equity put/call volume ratio rose to 0.61, while the 10-day moving average logged its second consecutive finish at 0.6.
Bolstered by an influx of praise from the brokerage community, Facebook Inc (NASDAQ:FB) staged a coup on the most active options listing and dethroned Apple Inc. (NASDAQ:AAPL) in terms of sheer volume on Tuesday. Facebook call options volume swelled after the stock received bullish notes from JMP Securities and Deutsche Bank. AT&T Inc. (NYSE:T) also saw record short-term options volume after receiving a pair of analyst upgrades.
Finally, Apple showed just how fast a blue-chip company can move by quickly settling a potential row with pop star Taylor Swift over its new Apple Music service.
Let’s dig a little deeper into the headlines and the options:
Facebook Inc (FB)
FB stock has become quite the hot topic among analysts this week. After FB received a significant price-target boost on Monday from Piper Jaffray, Facebook shares were praised again on Tuesday in bullish research notes from JMP Securities and Deutsche Bank. DB said it expected Facebook to expand its user base to more than 2 billion active users, with average revenue rising to $3 per user, while JMP reiterated its “buy” rating and issued a $101 price target on the stock.
Following Tuesday’s rally, Facebook is now worth more than Wal-Mart Stores, Inc. (NYSE:WMT) in terms of market cap. With FB stock trading at all-time highs, options traders were champing at the bit to get in on the action, sending volume to record levels on the shares. Overall, volume spiked to nearly 600,000 contracts, with calls accounting for 70% of the day’s activity.
Looking ahead to next week’s options activity, options traders have zeroed in on FB’s in-the-money weekly July 3 series $85 call strike, with open interest currently standing at 3,035 contracts. Out-of-the-money strikes are also getting attention, with both the weekly July 3 series $90 and $91 calls attracting open interest of 1,823 contracts and 1,025 contracts, respectively.
Apple Inc. (AAPL)
You rarely see companies the size of Apple move with speed and clarity on complicated issues, but the Cupertino-based firm showed that it is possible on Monday. Apple answered Taylor Swift’s demand for artists to be paid during Apple Music’s three-month free trial period by agreeing completely with the pop star. The move, while potentially costly for Apple, should head off any backlash or negative publicity from a legion of Swift fans — which could have been even more costly.
It’s odd to see AAPL options playing second fiddle to anyone on the daily most actives listing, but volume was a relatively anemic 492,993 contracts Tuesday. Activity still was on the bullish side, however, with calls claiming 63% of the day’s volume.
A closer look at weekly June 26 series options reveals that peak open interest now rests at the out-of-the-money $100 put strike, totaling 66,149 contracts. While these options are currently bid at 2 cents, or $2 per contract, it is a relatively safe bet that AAPL will finish north of the $100 mark by the end of the week, making put sell positions the likely culprit for the activity.
AT&T Inc. (T)
AT&T was an unusual sight at the No. 3 spot on yesterday’s most active options listing, as traders sent more than 400,000 contracts across the tape on the issue following a pair of analyst upgrades for T stock. Specifically, UBS lifted its rating to “buy” from “neutral” and its price target to $42 from $34, while Barclays lifted T stock to “overweight.”
Currently, T stock sports a consensus price target of $35 with nine “buys,” 18 “holds” and three “sell” ratings.
On the options front, 60% of Tuesday’s volume came in on the call side. Over the short term, peak open interest in the weekly June 26 series totals 13,913 contracts at the overhead $36.50 strike, while the $35 put strike comes in at a distant second with 8,109 contracts.
As of this writing, Joseph Hargett did not hold a position in any of the aforementioned securities.
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