Stocks traded roughly 1.2% high across the board on Monday, and U.S. stock futures are up sharply in premarket trading. Wall Street looked past Friday’s terror attacks and instead focused on a rally in the energy sector. Heading into the open, futures on the Nasdaq Composite are up 0.41%, while futures on the Dow Jones Industrial Average have added 0.49%, and the S&P 500 Index was up 0.42%.
Options volume remained brisk on Monday, with calls regaining some traction amid rising oil prices. On the CBOE, the single-session equity put/call volume ratio slipped to a reading of 0.71. The 10-day moving average edged higher to another one-month high of 0.74.
On the equity options front, Netflix, Inc. (NASDAQ:NFLX) was active for a second session in a row after analysts projected that earnings at the online media streaming giant could rise by as much as 50% in 2016. Meanwhile, Amazon.com, Inc. (NASDAQ:AMZN) drew unusual options attention after Germany announced it was investigating the company’s audio book deal with Apple Inc. (NASDAQ:AAPL). Finally, Microsoft Corporation (NASDAQ:MSFT) was flooded with call options ahead of the company’s ex-dividend date.
Netflix, Inc. (NFLX)
Netflix was the target of conflicting analyst reports on Monday. First, Topeka Capital Markets cut its price target on NFLX stock to $142 per share from $161 per share, but held its “buy” rating. Second, analysts are reportedly expecting Netflix earnings to grow by as much as 50% in 2016. With NFLX stock surging nearly 7.5% on Monday, traders were clearly cheering the company’s growth potential while overlooking the target cut.
Options traders were leaning optimistic as well, with calls accounting for 59% of the 136,974 contracts trading on NFLX on Monday. The shift in sentiment stands out for NFLX, as options traders have historically shown a heavy preference for NFLX puts.
Looking at November options, NFLX is currently trading north of heavy call and put accumulations at the $110 and $111 strikes. The next major hurdle, from an OI standpoint, is $115, where 11,751 calls and 1,346 puts currently reside. Barring a major rebound this week, the Nov $115 calls appear poised to close out of the money, however.
Amazon.com, Inc. (AMZN)
Amazon once again finds itself the target of potential regulatory action this week. On Monday, Germany’s Federal Cartel Office opened an investigation into the company’s audio book deal with Apple. Neither Amazon nor Apple have commented on the news, but the German regulatory body stated that “The two companies have a strong position in the digital offering of audiobooks in Germany. Therefore, we feel compelled to examine the agreement between these two competitors in the audio books in more detail.”
Despite the investigation, AMZN options traders were call-heavy on Monday. Overall, these typically bullish bets accounted for 62% of the 144,432 contracts changing hands on AMZN. In premarket trading, AMZN is hovering north of $651, meaning that the 2,924 calls open at the Nov $650 strike are poised to open in the money.
The next potential sticking point for AMZN lies at $655, where 2,139 calls are currently open. Meanwhile, $650 could emerge as a short-term support level for AMZN, due to trendline support and roughly 1,500 puts open at the $650 strike in the November series.
Microsoft Corporation (MSFT)
Microsoft finally announced an end to its Zune Music service on Monday, and no one noticed or even knew the service was still active. Still, the stock saw brisk short-term option activity, with more than one million contracts changing hands. Calls were the dominant choice on Monday, accounting for a whopping 95% of all contracts traded on MSFT.
While it’s amusing to speculate that options traders are expecting big things for MSFT in the wake of Zune’s demise, Microsoft’s looming ex-dividend date is the likely cause for Monday’s spike in call volume. MSFT will trade ex-div tomorrow, meaning that traders of record as of the close this afternoon will be eligible for a cash dividend of 36 cents per share, payable on Dec. 10.
As of this writing, Joseph Hargett did not hold a position in any of the aforementioned securities.
