The major market indices hovered just above breakeven on Thursday, as hopes once again ignited for a potential solution to the Greek debt crisis. The S&P 500 added roughly 0.23%, and is headed sharply higher in premarket trading this morning, pointing toward a potential end to two straight weeks of losses.
Fear among options traders appeared to lessen on Thursday, as the CBOE single-session equity put/call volume ratio retreated to 0.69. Still, recent heavy put activity has driven the 10-day moving average to another annual peak at 0.75.
Option volume has picked up during the past week, as traders prepare for a flood of second-quarter corporate earnings reports. For instance, Alcoa Inc (NYSE:AA) drew a rush of calls after analysts downplayed the company’s weak second-quarter earnings figures. Elsewhere, Facebook Inc (NASDAQ:FB) saw a bullish reiteration from a Neeham analyst, while Tesla Motors Inc (NASDAQ:TSLA) CEO Elon Musk predicted that a positive reception of the Model X could double the company’s volume.
Facebook Inc (FB)
Analyst positioning ahead of Facebook’s second-quarter earnings report kicked off yesterday after Needham analyst Laura Martin reiterated her “buy” rating and $93 price target on FB stock. Martin is projecting $4 billion in revenue and earnings of 39 cents per share on a non-GAAP basis. Last quarter, Facebook warned that strength in the U.S. dollar could impact revenue by more than the 7% growth-rate reduction the company saw in the first quarter.
Options activity remained robust on FB for a second day in a row, with 181,948 contracts crossing the tape. Calls remained king for the social media giant, accounting for 68% of FB’s total volume on the day.
Calls have been a mainstay for FB options traders in recent weeks, sending the stock’s total put/call open interest ratio down to a reading of 0.47, as these typically bullish bets more than double their put counterparts. Looking ahead to next week’s July options expiration, traders will want to keep a close eye on the $85 level, as this strike is home to peak open interest of 59,371 call contracts.
Tesla Motors Inc (TSLA)
In a rather bold statement to CNBC, Tesla CEO Elon Musk said that “if the Model X is well received, it would be a doubling of Tesla’s volume.” The comment helped push TSLA stock more than 1% higher on Thursday, and TSLA is up roughly 2% in premarket trading this morning. Currently, analysts at Credit Suisse are projecting Model X deliveries of more than 7,000 vehicles by the end of 2015.
So far this week, options traders have kept TSLA near the top of the daily most actives listing. The stock saw options volume of more than 128,000 contracts on Thursday, though either protection or pessimism drove yesterday’s activity.
Specifically, puts accounted for 54% of Thursday’s volume on TSLA, implying that options traders were either using puts to protect stock positions or buying puts outright as speculation on a potential decline in the shares. The current total put/call open interest ratio for TSLA rests at 0.83, with puts in near parity with calls.
Alcoa Inc (AA)
AA stock rallied nearly 1% on Thursday, as the shares recovered from a 5% plunge the day prior to the company’s second-quarter earnings report. Alcoa posted earnings of 19 cents per share, falling well shy of expectations of 23 cents per share. Still, revenue beat expectations, and the company’s steady outlook drew support from the analyst community. Morningstar analyst Andrew Lane told CNBC that he’s optimistic about Alcoa’s long-term prospects, setting a $19 price target, while Jim Cramer also said he likes Alcoa long term.
Thursday’s option volume reflected the positive outpouring from the analyst community, with calls accounting for 62% of the 114,171 contracts traded on AA stock. In fact, the current total put/call open interest ratio for AA rests at 0.48, with calls dominating the landscape. One particular strike to keep close tabs on next week is the July $13 strike, which sports heavy call open interest of 20,488 contracts and put open interest of 15,864 contracts.
As of this writing, Joseph Hargett did not hold a position in any of the aforementioned securities.
