Tuesday’s Vital Data: Advanced Micro Devices, Petrobras and Chesapeake Energy

Options activity provides a look at expectations on AMD, PBR and CHK

U.S. stock futures are trading broadly lower this morning. Wall Street has finally shaken off it’s Monday haze and realized that there are serious trade concerns to look at.

Specifically, President Donald Trump’s warning that another $267 billion in tariffs on Chinese goods could follow on the heels of a promised $200 billion in tariffs already in the works. China has said it will retaliate in kind to any tariffs.

Heading into the open, futures on the Dow Jones Industrial Average have fallen 0.47%, with S&P 500 futures down 0.31%. Nasdaq-100 futures are also in the dumps, down 0.43%.

In the options pits, volume evaporated as options traders held their ground on Monday. Overall, only about 14.6 million calls and 11.1 million puts changed hands on the session for the lowest daily total in months. On the CBOE, the single-session equity put/call volume ratio fell to 0.62, hitting a one-week low.  The 10-day moving average ticked higher t0 0.61 — a three-week high.

Options traders zeroed in on reports that Advanced Micro Devices, Inc. (NASDAQ:AMD) continues to gain market share in in desktops and laptops. Elsewhere, energy companies were all the rage. Petróleo Brasileiro S.A. – Petrobras (NYSE:PBR) options rose on lower debt projections, and Chesapeake Energy Corporation (NYSE:CHK) rose despite falling natural gas prices.

Let’s take a closer look:

Tuesday’s Vital Options Data: Advanced Micro Devices, Petrobras and Chesapeake Energy

Advanced Micro Devices, Inc. (AMD)

Susquehanna offered praise for Advanced Micro Devices yesterday. Despite maintaining a “neutral” rating, the ratings firm said AMD is gaining market share in desktops and laptops due to growth in Ryzen Mobile. Susquehanna said that “most data points for AMD were constructive.”

Options traders have needed little urging lately to load up on AMD positions. Yesterday, volume spiked to 652,000 contracts following Susquehanna’s remarks. Calls claimed an impressive 71% of the day’s take.

That said, there is evidence that much of the recent call activity on AMD is profit taking. For instance, the October put/call open interest ratio has risen in the past week to 1.13. In layman’s terms, puts are more popular than calls in October, indicating expectations for a potential reversal in AMD stock.

Petróleo Brasileiro S.A. – Petrobras (PBR)

Brazilian state-owned oil company Petrobras is improving its balance sheet. Yesterday, the company cut its 2018 net debt target to $69 billion from $85 billion last year. Petrobras also said it expects free cash flow to rise to $15 billion this year from $13.9 billion in 2017.

Options traders appeared to react to the news. Volume spiked to 204,000 contracts, or more than double PBR’s daily average. Calls claimed a whopping 91% of the day’s activity.

Taking a closer look at that call activity on Trade-Alert.com reveals that most of this activity took place at the January 2019 $11 and $14 strike calls. Blocks totaling roughly 60,000 contracts traded on both January strikes, both at the mid price, making it hard to tell the trader’s intentions.

Open interest at the January 2019 $11 call currently stands at 118,000 contracts, with about 96,000 contracts open at the January 2019 $14 call.

Chesapeake Energy Corporation (CHK)

Natural gas prices fell sharply yesterday, but Chesapeake Energy stock defied the price action of its main commodity. The U.S. Energy Department said that weekly inventories rose more than expected. Combined with weather predictions and continued strong production, natural gas shed 4.8% last week.

Still, CHK stock rose more than 1.2% yesterday. The shares are trading near oversold levels and support at their 200-day moving averages. In other words, bargain hunting appears to be outweighing short-term weakness in natural gas prices.

Options traders were call heavy yesterday. Volume topped 186,000 contracts, coming in at about 5.7 times CHK’s daily average.

As with PBR, the majority of this activity came from one set of trades. At about 3:30 p.m. yesterday, two blocks of January 2020 $7 calls totaling about 80,000 contracts and 62,000 contracts traded at the bid price. In other words, one or two traders sold thousands of January 2020 $7 strike calls on CHK.

The bid at the time of the trades was 36 cents, or $36 per contract, putting the total for both transactions at more than $5.1 million — a rather sizeable bet that CHK will remain below $7 for the next two years.

As of this writing, Joseph Hargett held no position in any of the aforementioned equities.

Article printed from InvestorPlace Media, https://investorplace.com/2018/09/tuesdays-vital-data-advanced-micro-devices-petrobras-and-chesapeake-energy/.

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