Tech bulls proved busy bees Tuesday
06/07/17

Tech, tech, and more tech.

It’s been a major focus for the market all year as several positive forces converged. A historic shift toward E-commerce hitting full stride? Check. Runaway chip sales and hardware spending as phones, PCs, and networks get upgraded? Check. Breakouts in the software names whose programs keep all the bytes crunching? Check.

The S&P Technology Select Sector Index is already up 18 percent so far this year. That’s more than twice the return of the broader S&P 500, with no other major group even coming close to that kind of return.

Yesterday options traders went to work across the space, mostly looking for further gains in several companies. Two major chip makers led the charge.

Advanced Micro Devices (NASDAQ: AMD) hit first, with the 9-June 12 calls nibbled for $0.10 shortly after the opening bell. Orders kept flowing in as the shares moved higher and premiums more than quadrupled to $0.44. Some 25,000 contracts changed hands by the end of the session. 

Micron Technology (NASDAQ: MU) wasn’t far behind. The maker of memory circuits drew buyers in its 30-June 29 calls for $3.30 and its 9-June 33 calls for $0.09 to $0.12. 

Calls are options to purchase a security, letting investors profit from a rally with relatively little capital at risk. They can generate significant leverage if a stock runs in the intended right direction, but also expire worthless if no move occurs.

AMD rose 6.94 percent to $12.02 yesterday after management said the surge in “cryptocurrencies” like Bitcoin was driving demand for its chips.1 MU climbed 1.15 percent to $31.57. Both are up more than 100 percent in the last year.

Oclaro (NASDAQ: OCLR) is puny and obscure compared with AMD or MU, with only a fraction of the revenue or market capitalization. But yesterday the fiber-optic company also saw a spike in activity as buyers vacuumed up more than 5,500 of its October 10 calls for $1.70 to $1.80, plus about 3,500 June 11 calls for $0.21 to $0.35. OCLR rallied 8.71 percent to $10.48.

Momo (MOMO), 6-month chart

Source: OptionsHouse by E*TRADE

Other traders apparently thought that prudence was the better part of valor in Activision Blizzard (NASDAQ: ATVI). They bought 5,000 July 60 puts for $1.75, and sold matching numbers of the July 57.50 puts and the July 62.50 calls for $0.83 and $0.87, respectively. The strategy, which combined a vertical spread with a collar, had a net cost of $0.05 and will return $2.50 if ATVI closes at $57.50 or lower on expiration. It will be worthless if the stock's above $60.

But isn’t that a bearish play, you may ask? Well, don’t forget the videogame maker is already up 65 percent this year, landing at the top of S&P’s Technology index during that period. So it looks like the trader was looking to protect a winning position in about 500,000 ATVI shares. (Each options contract controls 100 shares.)

One other note: Chinese social-media company Momo (NASDAQ: MOMO) also seemed to draw a hedging activity as traders purchased October 40 puts. This stock’s already doubled since January and rose again this week after testing its 50-day moving average.

Bottom line: Technology has been leading the market higher, and traders remained active in the sector yesterday.

 

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1. CNBC.com: AMD shares are surging with bitcoin because digital currency 'miners' need its graphics cards. 6/6/17.