Day two of the market recovery rally ended with stocks up sharply on the day. The S&P 500 paced the gains, adding 2.43% on Thursday. Once again, government intervention was the name of the game, with China slinging stimulus in the form of 60 billion yuan in short-term liquidity, while stateside investors remained hopeful that the Fed would stay its hand on an interest rate hike for a while longer.
Option volume stayed the course on Thursday, as traders cautiously edge their way back into call territory. Overall, the CBOE’s single-session equity put/call volume ratio fell to a more optimistic reading (in terms of investor sentiment) of 0.76, while the 10-day moving average held at 0.79 in annual high territory.
Taking a closer look at equity options, Netflix, Inc. (NASDAQ:NFLX) saw elevated put volume on Thursday after Amazon.com, Inc. (NASDAQ:AMZN) announced that Prime would also launch in Japan in September. Meanwhile, Tesla Motors Inc’s (NASDAQ:TSLA) new Model S P85D “blew up” Consumer Reports rating system, and Freeport-McMoRan Inc (NYSE:FCX) announced plans to slash capital expenditures by more than $1 billion.
Netflix, Inc. (NFLX)
NFLX stock soared nearly 7% on Thursday, as the shares joined in the broad market-recovery rally. Options traders, however, were holding their optimism in reserve, possibly sparked by Amazon’s announcement that Prime would also launch in Japan in September, stealing Netflix’s initial exclusivity. The stock saw option volume of 274,581 contracts change hands, arriving near the top of NFLX’s upper range for volume on the year. Furthermore, puts were the favored contract, accounting for 52% of Thursday’s total volume.
Heading into weekly Aug. 28 series expiration, NFLX is trading just north of $116. As such, traders will want to keep an eye on the 2,354 call contracts at the Aug $116 strike, as well as the 2,838 contracts at the $117 call strike. Meanwhile, potential options-related support could manifest at $115, as this strike is home to 5,186 put contracts.
Tesla Motors Inc (TSLA)
Tesla Motors scored a flood of media headlines yesterday after Consumer Reports said that the company’s Model S P85D “really blew up our system.” Specifically, the Consumer Reports said that the P85D scored better than perfect on the consumer watchdog’s ratings system, calling it the best car they had ever tested. That said, the P85D is not anticipated to be a high sales-volume vehicle, sporting a $105,000 price tag on the low end.
Taking the hint, TSLA options traders were more cautious than usual in Thursday’s trading. Overall, TSLA saw 159,934 contracts change hands, with puts gobbling up 51% of the day’s take.
Checking with expiring weekly August options, TSLA is facing potential resistance at $240, where 1,844 call contracts currently reside in the August series. Meanwhile, 2,688 puts are open at the $240 strike, with another 2,135 contracts open at the $235 strike. With TSLA trading down 1.5% in premarket activity, it looks like bulls may want to wait until Monday for the shares to break in one direction or another.
Freeport-McMoRan Inc (FCX)
With a gain of 28.66% on the day, FCX stock more than outstripped the broader market’s rally. Furthermore, the shares are up another 19% in premarket trading this morning. Driving the gains is a report from Freeport stating that the company is cutting administrative costs, capital expenditures, production levels, and exploration costs for fiscal 2016. In total, costs are expected to plunge from $5.6 billion this year to $4 billion in 2016. Freeport cited weak market conditions after copper prices took another hit amid the Chinese stock market plunge.
The bullish news drove options traders into FCX calls on Thursday. Total volume came in at 216,199 contracts, with calls accounting for 57% of the day’s activity. Expiring weekly Aug. 28 series options shows that a wealth of call open interest is now in the money following yesterday’s rally. Some 12,480 contracts are currently open at the $10 strike, with another 10,030 contracts open at the $10.50 strike.
As of this writing, Joseph Hargett did not hold a position in any of the aforementioned securities.
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