The major market indices rallied once again on Friday, as stocks posted their eighth winning session in nine days. However, gains may be limited this week, as Alcoa Inc. (NYSE:AA) whiffed on its third-quarter earnings report, setting a negative tone for the start of a fresh round of corporate earnings. To close out last week, S&P 500 added a mere 0.08%, while the Nasdaq Composite rose 0.4%.
Volume on the CBOE came in well above average on Friday, with the expiration of weekly October 9 series options helping to drive activity. Equity calls were quite popular on the day, as the CBOE single-session equity put/call volume ratio continued lower to 0.64, driving the 10-day moving average to a one-month low of 0.75.
On the equity option front, Facebook Inc (NASDAQ:FB) saw call volume return to normal levels on Friday after Credit Suisse upped its price target on FB stock to $115 from $110 per share. Meanwhile, Bank of America Corp (NYSE:BAC) calls were also popular ahead of the company’s trip to the earnings confessional this Wednesday. Finally, Alcoa puts deepened bearish sentiment on the stock after the company missed Wall Street’s third-quarter expectations by a wide margin.
Facebook Inc (FB)
Credit Suisse reiterated its “outperform” rating on FB stock and bumped its price target to $115 from $110 per share on Friday morning. The company said it was adjusting its outlook on Facebook in anticipation of the company’s third-quarter earnings report, which is due to hit the Street on Nov. 4. Credit Suisse also readjusted its earnings projections for Facebook to include expectations for revenue from coming release of the Oculus Rift VR headset.
While call volume has fallen in recent weeks due to privacy regulations in the EU, sentiment bounced back on Friday. Overall, 286,290 contracts changed hands on FB on Friday, with calls accounting for 66% of the total take. Looking at the October 16 series, traders are currently focused heavily on the overhead $95 strike, where 82,883 calls and 58,187 puts are currently open.
Bank of America Corp (BAC)
Earnings season hits its stride this week, with banking sector stocks taking center stage. Joining in the revelry, BofA is slated to report a profit of 33 cents per share on revenue of $20.85 billion. Both figures are down from results in the same quarter last year. EarningsWhipser.com indicates that expectations may be higher, though, with BofA’s whisper number coming in at 37 cents per share.
Options traders are already gearing up, with volume hitting a near-term high for BAC stock. Some 234,400 contracts changed hands at the end of the week, with calls accounting for nearly 70% of Friday’s total volume. Traders will want to keep a close eye on the overhead October $16 strike, as peak call open interest of 94,924 contracts current resides here. Peak put OI, meanwhile, totals 59,688 contracts at the out-of-the-money $15 strike.
Alcoa Inc (AA)
Traders often say, “As Alcoa goes, so goes the rest of the market.” Let’s hope that isn’t true this quarter, as AA stock plunged nearly 7% on Friday after the aluminum giant missed Wall Street’s third-quarter earnings expectations by a wide margin. For the quarter, earnings came in at seven cents per share on revenue of $5.57 billion. Wall Street was looking for earnings of 13 cents per share on sales of $5.65 billion.
Put traders were quick to jump on AA stock, with these typically bearish bets accounting for 67% of Friday’s total volume. As for this week, peak OI totals 31,799 contracts at the out-of-the-money $11 strike, while peak put OI totals 19,800 contracts at the $9 strike.
As of this writing, Joseph Hargett did not hold a position in any of the aforementioned securities.
