Wall Street’s winning streak ended on Tuesday. The major market indices folded under the pressure of a deflating energy sector and disappointing earnings from the likes of International Business Machines Corp. (NYSE:IBM) and Yahoo! Inc. (NASDAQ:YHOO). On the day, the Nasdaq Composite was the loss leader, shedding 0.5%, while the Dow Jones Industrial Average fared best with a dip of 0.1%.
Option volume remained in above-average territory on Tuesday, as corporate earnings continue to drive brisk speculation activity. On the CBOE, the single-session equity put/call volume ratio rose on Tuesday, advancing to 0.70 as puts gained popularity. The 10-day moving average, meanwhile, held firm at 0.72 for the third-consecutive session.
On the equity option front, Micron Technology, Inc. (NASDAQ:MU) saw mixed activity after Redstone Technology Research downgraded shares to “short” on poor earnings expectations. Meanwhile, Tesla Motors Inc (NASDAQ:TSLA) puts were popular after TSLA stock crashed into a “worse-than-average” Consumer Reports review for its Model S. Finally, Weight Watchers International, Inc. (NYSE:WTW) made a rare appearance on the top 10 most active options listing after Oprah Winfrey disclosed a 10% stake in the company.
Micron Technology, Inc. (MU)
To say that Redstone Technology Research is not a fan of MU stock would be a bit of an understatement. Citing poor growth, industry checks, and low earnings expectations, Redstone downgraded MU to “short” from “neutral.” In a research note to clients, the firm noted, “we firmly believe Micron is likely to underperform industry bit growth of 20-25% y/y in FY16.”
Options volume spiked for MU stock following the note, with volume soaring to a short-term record of 273,131 contracts. Still, options traders remained largely undecided regarding MU’s future, with volume split nearly evenly between puts and calls.
Looking at weekly Oct 23 series options, calls remain the dominate investment choice. Currently, both the $18 and $18.50 strike sport OI of more than 9,200 contracts. Meanwhile, peak put OI for the series totals 6,880 contracts at the in-the-money $17.50 strike.
MU is currently holding above support at its 20-day moving average, but with heavy overhead call OI and the potential for stiff resistance at $18, those Oct $18-$18.50 calls appear to be dead money heading into Friday’s close.
Tesla Motors Inc (TSLA)
Consumer Reports giveth, and Consumer Reports taketh away. Last month, the consumer watchdog organization gave Tesla’s Model 2 P85D its highest rating ever — one that actually broke Consumer Report’s ratings model. Yesterday, however, the base Model S received a “worse-than-average” rating from the organization. With TSLA valuation built on the company continually pumping out high-quality cars that consumers are willing to wait months for and spend top dollar to acquire, the shares naturally plummeted following the news.
Options traders fed off the rise in bearish sentiment, with puts taking up 53% of yesterday’s total volume of 188,361 contracts. What’s more, weekly Oct 23 series OI could be problematic for any TSLA rebound this week. Specifically, nearly 2,000 call contracts and 2,300 put contracts currently reside at the $220 strike, adding a layer of potential options related resistance to an already technically difficult to overcome region.
Weight Watchers International, Inc. (WTW)
Despite fading from the public eye, the Oprah Winfrey “hug” remains a very real market motivator. In fact, WTW stock has surged more than 168% in the past two days after Weight Watchers disclosed that Oprah had taken a 10% stake in the company. Furthermore, WTW short sellers might be feeling considerable pain at the moment, with 15,7 million shares, or 57% of the stock’s total float, sold short as of the most recent reporting period.
Options traders don’t appear to be buying into the rally, however. While volume tagged a short-term record 134,525 contracts on Tuesday, 57% of the activity was comprised of put contracts. In the weekly Oct 23 series, the $16-$18 strikes have quickly acquired OI of more than 2,700 contracts each, while the $20 strike sports OI of 3,775 contracts.
With the $20 level looming large overhead, these traders may be speculating on a reversal following the recent euphoric run higher.
As of this writing, Joseph Hargett did not hold a position in any of the aforementioned securities.