Good morning and happy holidays! I hope you got your fill of Santa Claus yesterday because the official start of the “Santa Claus rally” on Wall Street is falling flat so far.
The situation is similar after the open this morning, with the Dow Jones Industrial Average flat, S&P 500 off 0.07% and Nasdaq-100 down 0.54%.
What’s more, options volume on Friday was among the lowest totals of the year. Only about 13.3 million calls and 10.6 million puts changed hands on the session. The CBOE single-session equity put/call volume ratio rose to 0.64 and the 10-day moving average ticked higher to 0.57.
Taking a closer look at Friday’s options activity, Advanced Micro Devices, Inc. (NASDAQ:AMD) and Nvidia Corporation (NASDAQ:NVDA) were smacked lower after cryptocurrency prices plunged as much as 30% on the session. Meanwhile, Time Warner Inc (NYSE:TWX) call options were once again popular after the merger deadline with AT&T Inc (NYSE:T) was pushed back to June.
AMD stock was the hardest hit on the S&P 500 on Friday, after cryptocurrency prices plunged across the board. More than 40 cryptocurrencies joined in the broad retreat, with bitcoin and Ether plummeting as much as 30% before eventually recovering. AMD, who’s GPUs are used in cryptocurrency mining, shed more than 3.2% as a result.
AMD options traders appeared to double down on bullish bets amid the decline. Volume topped out at 208,000 contracts, with calls making up 60% of the day’s take. Furthermore, the January 2018 put/call open interest ratio fell from a reading of 0.53, taken on December 19, to today’s perch at 0.52.
A falling put/call OI ratio is a sign that calls are being added at a faster rate than puts. In other words, despite AMD’s cryptocurrency concerns, options traders appear to be betting on a rebound in the shares. Currently, the January 2018 $15 strike is home to peak call OI of more than 129,000 contracts and rests more than 42% above AMD’s current perch.
NVDA stock was also caught up in the cryptocurrency crisis. The shares fell about 0.32%, well short of AMD’s plunge. Investors appear a bit more forgiving of NVDA when it comes to cryptocurrency, banking on the company’s strong presence in the artificial intelligence market.
Despite stock trader’s preference for NVDA over AMD, options traders were more cautious on Friday. Volume rose to 145,000 contracts, with calls only making up 54% of the day’s take. What’s more, the January 2018 put/call OI ratio for NVDA rests at a lofty reading of 1.11, with puts easily outnumbering calls among front-month options.
Peak January call OI for NVDA currently rests at the in-the-money $190 strike, while peak put OI for the series also calls the $190 strike home. Given this data, it would appear that NVDA options traders are expecting the stock to correct lower heading into the first month of 2018.
Time Warner continues to ride hopes that the AT&T merger will ultimately go through. TWX bulls got an influx of hope on Friday after the pair agreed to extend the deadline for their merger to June 21. The previous deadline was April 22. AT&T is currently preparing for a Department of Justice lawsuit seeing to stop the merger. The trial begins on March 19.
TWX options traders have been extremely active lately. Thursday saw traders flood TWX with large blocks of call options in the July series, looking to take advantage of the extended deadline. Friday also saw heavy call volume, with these typically bullish bets making up 62% of the more than 182,000 contracts traded on TWX.
TWX stock, meanwhile, has retreated from resistance near $93 after rallying for most of December. Short-term support should emerge near $92, with firm support closer to $90.
As of this writing, Joseph Hargett did not hold a position in any of the aforementioned securities.