Another down day for Wall Street appears to be in the cards this morning, as stocks are pointed solidly lower following weak Chinese economic data and falling oil prices.
Heading into the open, U.S. stock futures on the Nasdaq Composite are down 0.7%, while futures on the S&P 500 are lower by 0.68%, and futures on the Dow Jones Industrial Average were last lower by 0.63%.
Options volume fell to just below average levels on Monday, with broad market pressure driving speculation toward put activity on the session. Overall, the CBOE single-session equity put/call volume ratio jumped from Friday’s near-term low of 0.61 to finish at 0.83. The 10-day moving average rose to 0.7.
Looking at equity options activity, Netflix, Inc. (NASDAQ:NFLX) saw option volume surge to near-term highs on Monday after investors grew skittish following news that the company was significantly expanding its exclusive TV programming. Elsewhere, Energy Transfer Partners LP (NYSE:ETE) puts were quite popular after crude prices took a 5% hit yesterday, while Pandora Media Inc.’s (NYSE:P) decision to offer $300 million in debt drew ire from analysts, but calls from options traders.
Netflix, Inc. (NFLX)
NFLX stock dropped sharply on Monday, repeating a wave of panic selling that happens every time Netflix announces that it is spending money on new programming. This time around, Netflix said that it is doubling the number of original, exclusive TV shows for next year. While this is typically good news for Netflix subscribers, analysts and investors expressed their uncertainty over the spending by sending NFLX stock down by 4.25%.
Of course, the dip comes right after yours truly suggested a short-term bullish options strategy to take advantage of a breakout to new all-time highs. I still stand by the potential for an intermediate-term rally for NFLX stock, but the overall mood on Wall Street combined with yesterday’s plunge make now a bad time for entering such a trade. Deep out-of-the-money put sells, like the December 18 series $110 or $100 put, may be the way to go for more cautious NFLX options traders for the time being.
Taking a look at yesterday’s options activity for NFLX, volume topped out at 242,056 contracts, with calls making up 56% of the day’s take. As for targets in the weekly December 11 series, peak call OI totals 8,015 contracts at the overhead $130 strike, while peak put OI also resides at $130, totaling 4,640 contracts. Look for attention to shift lower for this series following yesterday’s drop.
Energy Transfer Partners LP (ETE)
ETE was the hardest hit among the energy sector after Monday’s 5% plunge in crude oil prices. A combination of slow growth in demand, over supply, and a strengthening U.S. dollar have created a perfect storm for falling crude prices, with some analysts predicting sub-$30 pricing in the future. Adding to ETE’s woes, some analysts are suggesting that the company’s 7.4% dividend yield is no longer viable.
Judging by yesterday’s activity, options traders have taken a firm bearish stance on ETE. Volume spiked to a short-term record 184,190 contracts for the stock, with puts snatching up a whopping 83% of Monday’s take. For the December series (Dec. 18 expiration), calls remain top dog, however, with peak OI totaling 16,293 contracts at the $20 strike. Peak put OI, meanwhile, totals 11,473 contracts at the $17.50 strike. After yesterday’s 15% plunge, those $17.50 puts are now trading solidly in the money.
Pandora Media Inc. (P)
Analysts were quick to express their displeasure with Pandora’s decision to offer $300 million in convertible senior notes, and the bearish tide continued to roll yesterday. On Thursday last week, FBR Capital reiterated P stock at “underperform” with a $10 price target, while RBC Capital cut the stock to “sector perform” and lowered its price target to $20 per share on Friday. Keeping the ball rolling, JPMorgan Chase & Co. (NYSE:JPM) cut its price target to $25 in a research note on Monday.
Since Thursday, P stock has shed nearly 15%, placing the shares just above long-term support near $12. Options traders are either doubling down by buying calls to cover fresh short stock positions, or betting on a rebound from support.
Option volume on P rose to 158,413 contracts on Monday, with calls taking up 90% of the day’s total activity. Overall, peak weekly December 11 series OI totals 2,692 contracts at the $11 strike put, while peak call OI numbers 2,411 contracts at the $12 strike call.
As of this writing, Joseph Hargett did not hold a position in any of the aforementioned securities.
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