The five-week winning streak is on the line today, as U.S. stock futures look to continue Wednesday’s losses into the open this morning. Wall Street is closed tomorrow for the Easter holiday, meaning stocks are at the mercy of a strengthening dollar and plunging crude prices heading into the long weekend.
As for futures, Dow Jones Industrial Average futures have shed 0.49% this morning, while S&P 500 futures have dropped 0.53%, and Nasdaq Composite futures were off 0.53%.
Options volume was anemic on Wednesday, with traders already leaving for the holidays. Puts remained popular on the session, driven by a need for protection immediately following the attacks in Brussels. As a result, the CBOE single-session equity put/call volume ratio dipped from a three-week high of 0.88 on Tuesday to a reading of 0.84 yesterday. The 10-day moving average rose to 0.72 — a one month high.
In equity options news, Nike Inc (NYSE:NKE) saw a spike in put option volume after the company missed third-quarter revenue estimates. Meanwhile, Freeport-McMoRan Inc (NYSE:FCX) stock suffered a significant blow off as commodities plunged when the U.S. dollar strengthened on a safe-haven bid in the wake of the Brussels terror attacks. Finally, Tesla Motors Inc (NASDAQ:TSLA) stock attracted considerable put option volume after the shares retreated from overbought levels — selling was exacerbated by a rather bearish Barron’s article.
Nike Inc (NKE)
In all honesty, Nike’s third-quarter report wasn’t as bad as the stock’s nearly 4% drop suggests. Earnings topped expectations at 55 cents per share, and revenue was only slightly down from expectations of $8.2 billion, arriving at $8.03 billion on the quarter — up 8% year-over-year. Nike even noted that footwear and apparel orders for the current quarter were already up 12% year-over-year.
Unfortunately for NKE stock, Wall Street was already in a selling mood, and the shares had run sharply higher heading into Tuesday evening’s report. As a result, NKE was hit hard by both a sell-on-the-news effect and a broader overbought malaise on Wall Street following nearly five weeks of gains.
Options traders weren’t as bearish as they could have been. Overall volume was well above average for Nike, with more than 335,000 contracts changing hands. Calls accounted for 52% of the day’s take, despite the stock’s plunge.
In premarket trading, NKE is pulling back once again. However, there are more than 5,300 puts open at the $60 strike in the weekly March 24 series that could provide options-related support. Additionally, NKE’s 50-day and 200-day moving averages are in the area to provide backup. Look for NKE to hold north of $60 through the close today and regroup heading into next week.
Freeport-McMoRan Inc (FCX)
If you were a mining company that relies heavily on commodities and precious metals pricing, Wednesday was a bad day. While crude oil’s roughly 4% plunge was headline news, gold was also pressured 2% lower on the day. After riding high on recovering metals prices, Freeport-McMoRan investors decided to take some profit off the table — apparently all at once.
FCX stock plunged more than 11% yesterday, surrendering the $10 mark, its 200-day moving average and its 10-day trendline, making technical traders more than a little nervous. In a move to backstop their long-stock positions, traders turned to put options, which made up more than 64% of yesterday’s total volume of 320,000 contracts on FCX.
Heading into the weekly April 1 series, FCX is hovering in the middle of considerable put OI. The overhead $10 strike sports nearly 2,800 put contracts, while the $9.50, $9, and $8.50 have all attracted more than 2,100 contracts each. If profit taking gains momentum, look for FCX to test $9 before the end of next week, placing those $10 and $9.50 strike puts well in the money.
Tesla Motors Inc (TSLA)
TSLA is another stock suffering from an overbought correction this week. The shares have lost ground in the past two trading sessions, with TSLA shedding roughly 5% on Wednesday. Adding to the stock’s technical troubles, Barron’s issued a scathing report on valuation yesterday, noting that while they expect to see sales surge in 2016, value and execution risks loom large. Barron’s held a $155 price target, but cut TSLA stock to sell on valuation concerns.
Options traders were not as gung-ho about piling on the bearish TSLA bandwagon on Wednesday, mostly because the group was already heavily leveraged with puts prior to the stock’s decline. Overall volume came in at just shy of 300,000 contracts, with puts accounting for 52% of the take.
Levels to keep an eye on in the weekly April 1 series include the $220 call strike, with OI of 3,290 contracts, as well as the $207.50 and $205 put strikes, which have accumulated roughly 2,000 contracts each.
As of this writing, Joseph Hargett did not hold a position in any of the aforementioned securities.
