An early rebound Tuesday gave way to late-day selling pressure, as Wall Street eschewed several positive economic reports in favor of a continued retreat. Despite a rate cut by the People’s Bank of China, positive new home sales for July and rising home pricing data from June, the major market indices fell more than 1% across the board yesterday. Heading into the open this morning, U.S. stock futures are once again pointing toward sizable premarket gains.
Options activity dialed back on volume in Tuesday’s trading, though levels remained elevated compared to the past month. Overall, the CBOE’s single-session equity put/call volume ratio continued to pull back from Friday’s peak, settling at 0.7 on Tuesday. The moderation in put volume drew the 10-day moving average down a notch to 0.78.
On the equity options front, banking giant JPMorgan Chase & Co. (NYSE:JPM) was upgraded at CLSA Ltd. on the believe that the recent China-induced selloff had been overdone for JPM stock. Elsewhere, Oreo cookie maker Mondelez International Inc (NASDAQ:MDLZ) made a rare appearance in the top 10 most active options list after the company’s CEO said she was open to a potential sale.
Finally, spurred by a Chinese interest rate cut, Alibaba Group Holding Ltd. (NYSE:BABA) gained additional rally fuel after announcing that a subsidiary plans to launch a first-of-its-kind AI in China.
JPMorgan Chase & Co. (JPM)
JPMorgan shares continued to lag on Tuesday, but options traders piled into calls following bullish comments from the brokerage community. Specifically, analysts at CLSA Ltd. upgraded JPM stock to “buy” from “outperform” yesterday, citing the fact that the global fall in stocks was overdone. “Like the basketball player LeBron James, JPM is good at both offense and defense,” CLSA analysts said in a research note.
Checking in on JPM options activity, volume swelled to a near-term high of 258,695 contracts on Tuesday. What’s more, calls gobbled up 90% of the day’s take, setting a rather bullish tone despite the stock’s 0.55% decline on the day.
Drilling down on weekly Aug. 28 series options open interest, traders are currently focused on JPM’s deep out-of-the-money $67.50 strike, which sports OI of 2,813 contracts. Another 2,327 call contracts have also sprung up at the $65.50 strike. Peak put OI, meanwhile, rests at the out-of-the-money $58 strike, totaling 2,215 contracts.
Mondelez International Inc (MDLZ)
While you might not be familiar with Mondelez by name, you most certainly have heard of at least one of its billion-dollar brands: Oreo, Cadbury, Trident gum and Tang. The company has come under scrutiny lately due to weak operating margins and poor growth. Adding to the pressure, hedge fund managers Bill Ackman and Nelson Peltz have pushed for the company to be sold, including trying to broker a deal with PepsiCo (NYSE:PEP). Earlier this week, Mondelez CEO Irene Rosenfeld said she wouldn’t block a deal if the right buyer came forward.
MDLZ options activity was rife with speculation following the statement. On Tuesday, volume exploded in the normally docile MDLZ options pits, with more than 161,400 contracts changing hands on the issue. What’s more, calls claimed the lion’s share of activity, accounting for 96% of all MDLZ contracts traded.
As for monthly September series OI, peak open interest totals 14,856 contracts at the in-the-money $42 call, with another 9,514 contracts open at the $45 call strike. On the put side, traders have zeroed in on the out-of-the-money $37 and $40 strikes, with OI totaling 11,499 contracts and 13,454 contracts, respectively.
Alibaba Group Holding Ltd (BABA)
It’s been a rough ride for Chinese stocks, and BABA has felt the pinch in spades during the past week. However, the shares came roaring back on Tuesday, leaping more than 4% in the wake of a Chinese interest rate cut. Providing additional fuel for the fire, Alibaba subsidiary Aliyun excited investors when it announced it was launching a new artificial intelligence, dubbed “DT PAI,” in China. Additionally, BABA stock was reiterated at “overweight” at JPMorgan Chase in pre-market activity this morning.
Options activity for BABA stock came in below average on Tuesday, but the 151,516 contracts were still enough to put the shares near the top of the day’s most active options listing. Calls also were tops on the list, accounting for 57% of Tuesday’s volume.
Looking at this week’s options OI, the $70 strike could be a significant hurdle for BABA stock through the end of the week as 3,792 calls and 3,010 puts are open at the weekly $70 strike. The next options-related hurdle for BABA wouldn’t arrive until the $72 level, where 6,208 calls are currently open.
As of this writing, Joseph Hargett did not hold a position in any of the aforementioned securities.
