Wall Street appears to be in for a third straight day of gains, as futures on the Dow Jones Industrial Average are pointing toward a triple-digit pop on the open. Traders are finally looking past trouble in China, with a rise in oil prices adding leverage to the energy sector. Overall, U.S. stock futures on the Nasdaq Composite were last seen higher by 0.78%, with S&P 500 futures up 0.65% and Dow Jones futures up 0.60%.
Equity option volume arrived a bit below average on Tuesday, as traders took a breather amid a second consecutive positive day for stocks. Checking in with the CBOE, the single-session equity put/call volume ratio slipped to 0.86, with calls beginning to see a bit more action. The 10-day moving average came in at 0.76.
Turning to news driving equity options activity, earnings season is about to ramp up once again, leading to speculation among options traders. Alcoa Inc (NYSE:AA) unofficially kicked off earnings season yesterday, and while the company beat fourth-quarter earnings expectations, the shares still plunged and drew heavy put volume on the day. Elsewhere, both Bank of America Corp (NYSE:BAC) and Facebook Inc (NASDAQ:FB) are hot topics for options traders heading into their respective quarterly reports.
Alcoa Inc (AA)
All eyes were on Alcoa yesterday, as the company reported fourth-quarter earnings and revenue that came in better than expected. However, analysts still couldn’t get past the potential for the situation to get worse for the aluminum giant. Underscoring the main concern, analysts at Nomura said they were concerned about oversupply and declining demand, especially from China.
AA stock and options traders both agreed, as shares plunged nearly 9% while put volume soared to a near-term high. Overall, some 413,410 contracts changed hands on AA stock yesterday, with puts commanding 66% of the day’s total volume.
Alcoa shares are now trading south of nearly all major put and call strikes in the January 2016 series, with only the $7 strike remaining as a potential bastion of support. This out-of-the-money put currently sports OI of 22,471 contracts, and a breach here would be a very bearish signal for AA stock.
Bank of America Corp (BAC)
BofA will step into the earnings limelight ahead of the open next Tuesday, with analysts projecting a profit of 26 cents per share on revenue of $19.78 billion. The whisper number comes in at 33 cents per share, according to EarningsWhisper.com. While the bottom- and top-line figures will be important, most analysts likely will be looking for clues in BofA’s guidance, especially since the company was projected to be a leader in the financial sector in the wake of the Fed’s rate hike.
Options traders appear to like BAC stock’s chances, given that calls dominated the landscape Tuesday. Total volume came in at 904,576 contracts, with calls accounting for a hefty 73% of the day’s take — well above average for BAC.
A look at weekly Jan. 22 series OI reveals that a showdown could be brewing at the $15 strike, with 393,364 puts and 186,214 calls currently in residence. The next closest strike with heavy OI accumulations is the overhead $17 strike, where 780,696 calls and 571,145 puts reside. Unless BofA issues surprising guidance, shares may remain range-bound through the close of Friday next week.
Facebook Inc (FB)
Facebook doesn’t enter the earnings confessional until after the close on Wednesday, Jan. 27. That hasn’t stopped options traders from getting a head start on speculation, however. Wall Street is expecting a profit of 67 cents per share from Facebook, with revenue seen coming in at $5.35 billion. The whisper number comes in at 69 cents per share. Subscriber numbers, mobile advertising, and any news on Oculus Rift will certain be drivers for FB stock following the report.
Call volume remains strong for FB stock heading into the report. Total volume rose to 416,294 contracts, with calls making up 62% of all contracts changing hands. Currently, weekly Jan. 29 series options are pricing in a potential post-earnings move of about 7.5% for FB stock, placing the upper range at about $107 and the lower range near $93. Peak OI for the series numbers 13,927 calls at the $110 strike, with peak put OI totaling 2,249 contracts at the $99 strike.
As of this writing, Joseph Hargett did not hold a position in any of the aforementioned securities.
