Falling oil prices continue to be a lodestone for Wall Street, dragging the Dow Jones Industrial Average into the red for the year on Wednesday. However, while weak energy prices also weighed heavily in Asian trading, U.S. stock futures traded fractionally higher in late after hours activity last night. Specifically, U.S. stock futures on the Dow Jones Industrial Average were up 0.09%, while S&P 500 futures had added 0.10%, and Nasdaq Composite futures were up 0.11%.
Options volume came in just below average on Wednesday as traders made their final preparations ahead of the end of the year. Put/call activity leveled out yesterday, following several sessions of volatility. In fact, the CBOE single-session equity put/call volume ratio inched fractionally higher to 0.59 after hitting an annual low on Tuesday and an annual peak on Monday. The 10-day moving average held pat at 0.68.
On the equity options front, Facebook Inc (NASDAQ:FB) drew heavy option activity after a U.S. federal judge certified a pair of class action lawsuits stating that the company hid growth concerns in its 2012 initial public offering. Meanwhile, Bank of America Corp (NYSE:BAC) was smacked lower after the company announced a $600 million fourth-quarter pretax write-down related to its acquisition of Merrill Lynch. Finally, Tesla Motors Inc (NASDAQ:TSLA) saw call volume jump in the wake of a bullish fourth-quarter deliveries research note.
Facebook Inc (FB)
Facebook stock dropped nearly 1% on Wednesday after a federal judge certified a pair of class action lawsuits against the social media giant. According to the lawsuits, Facebook hid growth concerns ahead of its 2012 IPO. Specifically, FB hit $38 on May 18, but plunged by nearly 50% by Sept. 4 and held below its IPO price for more than a year. FB stock has clearly since recovered, closing at $106.22 yesterday.
Options traders appear to be optimistic toward FB’s prospects. On Wednesday, the stock saw option volume swell to more than 320,000 contracts — well above the stock’s daily average. Furthermore, calls accounted for a hefty 65% of the day’s take, arriving just north of the average of 63%.
Those FB options traders making last minute preparations might be concerned that the stock faces considerable overhead call OI in the weekly Dec 31 series. In fact, some 16,800 calls are open at the Dec 31 $107 call strike. These options were in the money prior to Wednesday’s drop. Additionally, there are another nearly 10,900 calls at the out-of-the-money $108 strike, hinting that FB stock may poised to close 2015 trapped below resistance at $108.
Bank of America Corp (BAC)
Bank of America can’t seem to shake off the specter of its Merrill Lynch acquisition. On Wednesday, BofA announced that it was taking a $600 million pretax write-down in the fourth quarter. The write-down is related to BofA’s redemption of $2 billion in trust preferred securities tied to the Merrill acquisition. The company hopes that by redeeming the TPSes, it will lower funding costs.
Option activity was brisk on BAC, but failed to stray too far from the stock’s daily average. Overall, 242,716 contracts changed hands on Bank of America on Wednesday, with calls snapping up 60% of the take.
Taking a closer look at Dec 31 series OI, it appears that there is a good chance of BAC getting pinned in the $17-$17.50 region heading into the end of 2105. Currently, peak December call OI of 43,571 contracts resides at the overhead $17.50 strike, while 19,552 calls are also open at the at-the-money $17 strike.
Tesla Motors Inc (TSLA)
TSLA shares edged higher on Wednesday, bucking the overall selling trend on Wall Street. Tesla was targeted by a bullish research note from Global Equity Research, which said that the company likely delivered more than 18,300 units in the fourth quarter. As a result, TSLA should be on track to hit the higher end of its prior quarterly guidance and its current annual forecast.
On the news, options traders flooded Tesla stock with call activity. More than 194,000 contracts traded on TSLA, with calls making up 73% of the total volume. Tesla could still have a bit of room to run before the end of 2015 — if the broader market allows for some late buying activity.
Currently, peak Dec 31 series call OI rests well overhead at the $260 strike — totaling 4,444 contracts — with light speed bumps at $240 and $250, which sport call OI of 2,793 and 2,066 contracts, respectively.
As of this writing, Joseph Hargett did not hold a position in any of the aforementioned securities.
