Wednesday’s Vital Data: General Electric Company (GE), Sunedison Inc (SUNE) and Wal-Mart Stores, Inc. (WMT)

U.S. stock futures are headed higher heading into the open this morning, as Wall Street begins to shake off another round of terror threats — this time due to a bomb scare coming out of Germany. Look for any early gains to be muted, however, as traders await minutes from the latest Federal Reserve meeting. At last check, futures on the Nasdaq Composite were up 0.20%, while futures on the Dow Jones Industrial Average had added 0.17%, and the S&P 500 Index was up 0.16%.  

Option volume dipped on Tuesday, though the roughly 3.5 million General Electric Company (NYSE:GE) contracts traded keep overall volume from dropping below average. Puts came out ahead yesterday, with the CBOE the single-session equity put/call volume ratio rising to 0.83. The 10-day moving average hit another one-month high of 0.75.

On the equity options front, General Electric volume rocketed as options traders rushed to get in position ahead of the company’s move to exit its Synchrony Financial (NYSE:SYF) stake. Elsewhere, Sunedison Inc (NYSE:SUNE) drew a flood of call activity despite a mass exodus by hedge fund investors. Finally, Wal-Mart Stores, Inc. (NYSE:WMT) attracted a wave of call volume after the company posted solid third-quarter earnings results.

Wednesday’s Vital Data: General Electric Company (GE), Sunedison Inc (SUNE) and Wal-Mart Stores, Inc. (WMT)

General Electric Company (GE)

If you didn’t know by now, GE stock has been heavily targeted by options traders for the better part of the past month. Driving this wave of speculation is General Electric’s move to exit its holdings in spinoff company Synchrony Financial. As part of the move, GE is retiring some 671 million shares, which can be converted by shareholders into SYF stock.

The result has been a massive arbitrage play by options traders during the past several weeks. On Tuesday, GE was hit with record short-term volume of nearly 3.5 million contracts. Calls, which are often favored by options traders seeking arbitrage plays, were the most popular contracts on the day, accounting for 52% of GE’s total volume.

Shifting gears to gauge GE’s short-term outlook, the $30 strike could be quite a sticking point for the stock this week. Currently, there are 120,654 calls and 51,427 puts open at the Nov $30 strike. With this many players taking interest in an essentially at-the-money strike, GE may well get pinned at $30 on Friday’s close.

Sunedison Inc (SUNE)

SUNE stock took another nosedive on Tuesday, with the shares plunging nearly 34% on the session. Earnings growth concerns have created quite a bit of consternation surrounding SUNE, but Tuesday’s activity all but put the nail in the coffin for Sunedison. Specifically, several hedge funds disclosed that they had either greatly reduced their SUNE holdings, or liquidated them entirely.  

The problem now for Sunedison is that the company needs to sell stock to raise cash for future growth, but investors are not buying SUNE because the stock is falling due to growth concerns.  It’s enough to give Captain John Yossarian nightmares.

As for options activity, calls are fast becoming the de facto investment vehicle for SUNE stock. On Tuesday, 315,395 contracts traded on SUNE, with 60% of those arriving on the call side. Traders and SUNE stockholders should take call activity on SUNE with a grain of salt, as it is often more profitable to trade calls on low single-digit stocks due to the greater potential for reward. After all, a stock can only fall so far, placing an inherent limit on SUNE put option returns.

Wal-Mart Stores, Inc. (WMT)

WMT stock made a rare appearance on the top ten most active options listing on Tuesday, as traders looked to skim a profit off the stock’s post-earnings rally. WMT added roughly 3.5% yesterday after Walmart’s third-quarter results edged out Wall Street’s expectations. However, investors remained somewhat concerned that while Wal-Mart’s online presence is growing, investments in technology continue to take a toll on the bottom line.

WMT options trading was unusually brisk for the world’s largest retailer. Volume topped out at 113,227 contracts, with calls accounting for 62% of the take. Looking ahead to Friday’s November expiration, Walmart is facing a potential pinning at the $60 strike. Currently, some 29,145 calls and 26,886 puts are open at the Nov $60 strike. Barring any significant developments or market moves, traders shouldn’t expect WMT to stray far from $60 ahead of Friday’s option expiration.

As of this writing, Joseph Hargett did not hold a position in any of the aforementioned securities.

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