We’re in for another ugly day on Wall Street, as U.S. stock futures are down about 2% across the board in premarket trading. Asian markets kicked off the plunge, with Japan’s Nikkei diving into bear-market territory. Additionally, crude futures fell more than 3% to trade near $27.50 per barrel in overseas activity.
Stateside, futures on the Nasdaq Composite have shed 2.09%, with S&P 500 futures down 1.82% and Dow Jones Industrial Average futures dropping more than 300 points, or 1.9%.
In options activity, calls regained favor amid Tuesday’s lukewarm session. In fact, the CBOE single-session equity put/call volume ratio dropped from a year-to-date high of 1.14 to rest a t0.68. As a result, the 10-day moving average edged edged lower to 0.85.
In equity option news, Bank of America Corp (NYSE:BAC) saw call volume spike to near-term highs after the company posted better-than-expected fourth-quarter earnings. Elsewhere, Netflix, Inc. (NASDAQ:NFLX) drew mixed options activity ahead of its fourth-quarter report, which topped analyst expectations. Finally, Twitter Inc (NYSE:TWTR) was inundated with calls as the shares plunged 7% following a massive service outage.
Bank of America Corp (BAC)
BofA stepped into the earnings limelight yesterday morning to report fourth-quarter earnings of 28 cents per share on revenue of $19.7 billion. The consensus was looking for 27 cents per share on $19.8 billion in revenue. Bank of America lauded its full-year results as being the highest in nearly a decade with “solid customer activity in loan growth, deposits, and wealth management asset flows.”
Options traders agreed with the positive assessment, as calls made up 69% of the 788,200 contracts traded on BAC stock yesterday. The shares, however, fell 1.5% and are down another 3.8% in premarket activity this morning.
As such, options traders should keep a close eye on the weekly Jan 22 series $14 call, where 16,848 contracts are open, and the $13.50 put, which sports open interest of 15,020 contracts. Below $13.50, there is very little in the way of potential put-related support for BAC stock.
Netflix, Inc. (NFLX)
If premarket trading carries over into the open, NFLX stock may be one of the few equities to escape another bloodbath today. Shares are up slightly this morning as stockholders continue to cheer a stronger-than-expected fourth-quarter report. By the numbers, Netflix said it earned 7 cents per share on revenue of $1.48 billion, versus expectations for earnings of 2 cents per share and revenue of $1.82 billion.
Subscriber growth was the real story, however. Netflix added 5.59 million subscribers, up from its 4.33 million a year ago. The company added 4.04 million international, above the 3.51 million expected by analysts.
Despite the stocks rally heading into the report, skepticism was thick among NFLX options traders on Tuesday. Volume came in at 630,076 contracts, with calls and puts nearly split down the middle.
NFLX is trading north of $111 in electronic trading, placing considerable focus on the weekly Jan 22 series $110 strike. This strike is home to 3,995 calls and 2,030 puts, and it would be a major coup for NFLX bulls if the shares were to hold this line amid today’s broad-market selloff.
Twitter Inc (TWTR)
Service outages are a normal thing in the online business. Unfortunately for Twitter, the company’s past woes have placed a spotlight on every minute mistake that comes down the pipeline. Twitter’s outage was so bad on Tuesday that the company was forced to issue an official statement, prompting the major news outlets to run with the headline.
It appears that TWTR options traders weren’t buying into the bearish line, as calls accounted for 72% of yesterday’s total volume of 238,336 contracts. That said, options traders could just as well have been using calls as hedges for new short positions.
With TWTR stock trading near $16 in premarket activity, options traders will want to watch the weekly Jan 22 series $16 put, where 2,653 contracts are currently open. Put OI is practically nonexistent below $16 in the January series, and a breach here could mean a steeper decline into annual-low territory.
As of this writing, Joseph Hargett did not hold a position in any of the aforementioned securities.
