Speculative players are taking sides on aluminum issue Alcoa Inc (NYSE:AA), financial concern Bank of America Corp (NYSE:BAC), and tech bigwig Hewlett-Packard Company (NYSE:HPQ), according to data from the major options exchanges. More specifically, traders are buying calls on the stocks at a rapid-fire rate. Here's a closer look at recent option activity on these three blue chips, which were ousted from the Dow Jones Industrial Average (INDEXDJX:DJI) over the weekend.
Alcoa Inc (NYSE:AA)
During the past five days, options traders on the International Securities Exchange (ISE) have bought to open 17,849 calls on AA, compared to fewer than 500 puts -- resulting in a call/put volume ratio of 40.29. This ratio is among the top 20 on the exchange, underscoring the heavy call skew of late.
Broadening that to include data from the Chicago Board Options Exchange (CBOE) and NASDAQ OMX PHLX (PHLX) (and expanding the scope to two weeks), AA sports a 10-day call/put volume ratio of 6.80. Compared to similar readings of the past year, this ratio registers in the 81st percentile, suggesting option buyers have been scooping up AA calls over puts at a much faster-than-usual clip.
It's worth noting that short interest edged 9.1% higher during the most recent reporting period, and now represents more than a week's worth of pent-up buying demand, at the stock's average pace of trading. Against this backdrop, it's possible that short sellers are picking up AA calls -- especially those of the out-of-the-money variety -- to hedge their bearish bets in the event of a rally.
Regardless of motive, AA's Schaeffer's put/call open interest ratio (SOIR) rests at 0.58, implying that calls nearly double puts among options expiring within three months. Furthermore, this ratio sits just 23 percentage points from an annual nadir, indicating a bigger-than-usual call bias among near-term traders.
Garnering notable attention of late has been AA's near-the-money October 9 call, which has seen just over 6,000 contracts added during the past 10 sessions. This strike is now home to peak call open interest in the front-month series, with more than 27,000 contracts in residence.
Technically speaking, AA has given up 4.8% so far in 2013, and currently rests at $8.26. From a longer-term perspective, the stock is struggling to surmount the $8.50-$9 region, which hasn't been conquered on a weekly closing basis since mid-February. What's more, the aforementioned glut of open calls at the October 9 strike could translate into an added layer of options-related resistance in the short term, as these bullish bets start to unwind.
Bank of America Corp (NYSE:BAC)
BAC has racked up a 10-day ISE/CBOE/PHLX call/put volume ratio of 3.09, indicating that traders have bought to open more than three BAC calls for every put during the past two weeks. This ratio stands higher than 63% of comparable readings of the last 12 months, hinting at a slightly healthier-than-usual appetite for bullish bets of late.
While the out-of-the-money October 15 call has been getting some play -- more than 60,000 contracts were added during the last 10 sessions, and most were bought to open -- puts are still preferred by a wider-than-usual margin among near-term traders. Specifically, the stock's SOIR of 0.83 registers in the 57th percentile of its annual range.
On the charts, BAC has added 20.9% in 2013, but is now testing support atop the $14 level -- home to its 80-day moving average. Off the charts, the company yesterday was ordered to pay $2.18 million to 1,147 black job applicants over racially discriminate hiring practices.
At last check, BAC has surrendered 0.7% to $14.05.
Hewlett-Packard Company (NYSE:HPQ)
Finally, HPQ boasts a 10-day ISE/CBOE/PHLX call/put volume ratio of 2.27 -- just 6 percentage points from an annual climax. Or, in simpler terms, option players have bought to open HPQ calls over puts at a near-annual-high clip during the past two weeks.
As a result, the stock's SOIR sits at 0.76, in the 10th percentile of its annual range. In other words, short-term speculators are more call-skewed than usual at the moment.
The equity's out-of-the-money October 23 call has seen roughly 18,000 contracts opened during the past 10 sessions, making it home to peak front-month call open interest of nearly 38,000 contracts. Digging even deeper, nearly 15,500 contracts were bought to open on Thursday, Sept. 19. By purchasing the calls to open, the buyers expect HPQ -- currently trading at $21.16 to rally north of $23 within the next few weeks.
From a technical standpoint, HPQ hasn't traded north of $23 since Aug. 22, the day after the company reported earnings and announced a major management shake-up. Since then, the stock has been drifting lower beneath its 10-day moving average, exploring territory not charted since May.
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