U.S. stock futures are rallying for a third consecutive morning in premarket trading, with Wall Street issuing a sigh of relief after the Federal Reserve finally issued an official decree to hike interest rates. Stating that she’s “confident about the fundamentals driving the U.S. economy,” Fed Chairwoman Janet Yellen boosted the Fed’s key lending rate by a quarter point on Wednesday.
Global stock exchanges rallied on the news, and that strength is carrying over into the open this morning, with U.S. stock futures on the Dow Jones Industrial Average up 0.35%, while futures on the S&P 500 are up 0.30%, and the Nasdaq Composite is up 0.46%.
Options activity was heavy once again on Wednesday, with calls remaining the investment vehicle of choice. In fact, the CBOE single-session equity put/call volume ratio retreated to a multi-week low of 0.54, dragging the 10-day moving average down a notch to 0.74.
In equity options activity, General Electric Company (NYSE:GE) was about to trade ex-dividend, driving heavy call volume, but the company also boosted its 2016 guidance and hinted at the sale of its appliances business. Elsewhere, SolarCity Corp (NASDAQ:SCTY) was inundated with call activity as the shares spiked more than 30% in the wake of a Congressional extension to the solar tax credit. Finally, Valeant Pharmaceuticals Intl Inc (NYSE:VRX) saw a second day of gains after announcing a prescription drug deal with Walgreens Boots Alliance Inc (NASDAQ:WBA)
General Electric Company (GE)
GE stock trades ex-dividend today, a fact that likely spurred most of yesterday’s tsunami of call volume. Overall, more than 2.3 million contracts traded on GE yesterday, with calls accounting for 91% of the day’s take. Dividend capture was the likely culprit for this unusually high call volume.
That said, GE also saw a pair of additional headlines that could have added to bullish call activity. First, CEO Jeffrey Immelt told investors that the company has several potential buyers lined up to acquire GE’s appliance division. Immelt hinted that a sale could close early next year. Additionally, GE issued 2106 earnings guidance of $1.45 to $1.55 per share, versus analysts expectations for $1.52 per share.
As traders head into December expiration tomorrow, they should keep a close eye on GE stock price action near $31. This strike is home to peak call OI of 42,213 contracts, which could create a bit of a headwind for GE stock. Meanwhile, there are 32,786 put contracts open at the December $30 strike, which could help pin GE in the $30-$31 range through the end of the week barring any major market gyrations.
SolarCity Corp. (SCTY)
Solar stocks surged Wednesday after Congress looked ready to extend a 30% federal tax credit for businesses and homeowners who install solar systems. Additionally, SolarCity received additional lift from bullish commentary from Oppenheimer and Deutsche Bank following the company’s investor day event.
Option volume for SCTY hit record short-term high levels on Wednesday, with some 261,492 contracts changing hands on the stock yesterday. Despite the bullish news, puts were the most popular contracts, accounting for 53% of the day’s activity.
Whether these puts were hedges against a flood of new positions or bets that the stock’s current perch won’t hold remains to be seen. That said, SCTY stock is now trading north of any meaningful call or put open interest in the December series. In fact, the next major hurdle (from an options standpoint) doesn’t emerge until the Jan 2016 $60 strike, where 10,945 contracts are currently open.
Valeant Pharmaceuticals Intl Inc (VRX)
After jumping more than 16% on Tuesday, VRX stock added another 8% on Wednesday after signing a prescription drug distribution deal with Walgreens Boots Alliance. The deal runs through 2035, and allows Valeant to sell its skin and eye products at more than 8,000 Walgreens stores.
Option volume was hot and heavy for VRX on Wednesday, with more than 258,000 contracts changing hands. Calls had a distinct advantage, accounting for 58% of the day’s total volume. Looking at tomorrow’s December expiration, VRX traders will want to keep an eye on the $115 and $120 call strikes. The $120 strike sports OI of 8,349 contracts and could create headwinds for the shares, while the 9,965 contracts at the $115 strike could do the same if VRX slips back beneath this level before the close tomorrow.
As of this writing, Joseph Hargett did not hold a position in any of the aforementioned securities.
