Stocks headed higher Wednesday, propelling the major market indices back into the green for the week. Corporate earnings continue to dominate the options landscape, with Netflix, Inc. (NASDAQ:NFLX), Kinder Morgan Inc (NYSE:KMI), and Bank of America Corp (NYSE:BAC) all arriving among the most active stocks due to elevated call volume.
The Nasdaq led the way, with the S&P 500 following close on it heels. The improved mood had an impact on options trading as well, with the CBOE’s put/call volume ratio turning lower once again to arrive at 0.59. The 10-day moving average dipped to 0.62.
Netflix, Inc. (NFLX)
Shares of Netflix finished lower Wednesday, but surged more than 12% in after-hours trading following blowout first-quarter subscriber growth. By the numbers, NFLX revenue arrived in-line with earnings missed by a wide margin, arriving at 39 cents per share versus expectations for 69 cents per share. Still, the extra expenses that impacted earnings paid off big, with Netflix adding 4.88 million streaming subscribers worldwide last quarter, crushing Wall Street’s expectations.
Options activity was mixed heading into the report, but maintained a slight bullish bias. Specifically, 55% of the 157,871 contracts trading on NFLX stock crossed on the call side. Look for these figures to skew more heavily toward calls today, as traders take profits and look to position themselves for follow-through buying (potentially from short sellers being squeezed).
Kinder Morgan Inc (KMI)
Kinder Morgan was a heavy favorite among call traders on Wednesday, with a whopping 96% of the day’s 159,167 contracts in volume trading on the call side of the tape. Among front-month options, the overhead April $44 strike currently sports peak call open interest, totaling 11,081 contracts. An additional 10,552 contracts are open at the in-the-money April $42.50 strike. That said, KMI is off nearly 1% in premarket trading as the stock reacts to last night’s quarterly report.
The company posted first-quarter earnings of 24 cents per share after the close, topping the Street’s view by a penny. Revenue, however, whiffed expectations for $4.18 billion, arriving down at $3.6 billion. The company also offered up guidance below the consensus estimate, which could apply pressure to the shares in today’s trading.
On the other hand, KMI stockholders were given something to cheer, as Kinder Morgan boosted its quarterly dividend to 48 cents per share from 45 cents per share. The company also said that it was on track to meet its full-year dividend target of $2 per share, or 50 cents per quarter.
Bank of America Corp (BAC)
Bank of America stock fell more than 1% on Wednesday after the company missed Wall Street’s first-quarter earnings target. BofA posted a profit of 27 cents per share on the quarter, with revenue coming in at $22.7 billion, versus expectations for 29 cents per share on $2.15 billion in revenue. On a positive note, legal expenses at BofA fell to $370 million from $6 billion a year ago.
Options traders were not deterred by the report, however, with 72% of BAC’s 312,380 contracts in volume crossing on the call side of the tape. Peak near-term open interest currently totals 188,098 contracts at the front-month April 16 call strike, followed distantly by the 99,066 put contracts at the out-of-the-money April 15 strike. With BAC up slightly in pre-market trading, the calls are looking like smart money at this point.
As of this writing, Joseph Hargett did not hold a position in any of the aforementioned securities.
