Wall Street is a wreck in premarket trading this morning, as the Bank of Japan surprised everyone by offering up no additional economic stimulus after is monetary policy meeting this week. The news follows on the heels of yesterday’s U.S. Fed move to hold rates steady but leave the door open for a potential hike in June.
As a result, U.S. stock futures on the Dow Jones Industrial Average have plunged nearly 140 points, or 0.78%, with S&P 500 futures down 0.77% and Nasdaq-100 futures lower by 0.45%.
Options volume was below average on Wednesday, as traders were too busy digesting a wealth of economic and corporate earnings data. On the CBOE, as the single-session equity put/call volume ratio rebounded to 0.55 from Tuesday’s annual low, while the 10-day moving average dipped to a six week low of 0.66.
In equity options news, Facebook Inc (NASDAQ:FB) crushed first-quarter earnings expectations, and FB stock options traders were on the ball ahead of the report with heavy call volume. Meanwhile, AT&T Inc. (NYSE:T) saw unusually high option volume in the wake of a solid quarterly report, though slowing wireless growth has some investors concerned. Finally, Netflix, Inc. (NASDAQ:NFLX) faces a key technical test as the shares extend their losses following disappointing quarterly results.
Facebook Inc (FB)
Facebook options traders piled into calls on Wednesday in preparation for last night’s quarterly earnings report. Total volume soared to 1.8 million shares — a near-term high for Facebook — with calls snapping up 60% of the day’s take.
Heading into the report, peak weekly April 29 series call open interest was perched at the $120 strike, totaling roughly 28,000 contracts, with another 28,000 call contracts resting at the $115 strike. Judging from the OI levels, it would appear that April $115/$120 call spreads were the place to be ahead of Facebook’s earnings.
Facebook bulls were on point.
The shares are up nearly 10% in premarket trading, with FB hovering just shy of the $120 mark. A close at or above $120 would mark a maximum profit return for an April $115/$120 bull call spread.
Turning to earnings, Facebook earned 77 cents per share on $5.38 billion in revenue, blowing past expectations for earnings of 62 cents per share on revenue of $5.26 billion. Monthly active users were up 15% year-over-year, with mobile users up 21%.
AT&T Inc. (T)
AT&T just offered up a solid first-quarter report on the surface, but mixed numbers in subscription growth may plague T stock for a while.
The company said it earned 72 cents per share on revenue of $40.5 billion, but AT&T video subscriptions were down 54,000, while U-Verse lost 382,000 subs and DirecTV added 382,000. Wireless growth also slowed, to 129,000 additions from 441,000 last year.
Options traders were mostly positive following the news, with calls accounting for 62% of the roughly 350,000 contracts traded. T stock edged to within striking distance of $39 on Wednesday, taking out a key options hurdle at $38.50, where 16,000 calls and 16,000 puts lay in the April 29 series.
Traders will want to watch T’s price action near $39-$40, as a rejection here seems likely given the weak points in AT&T’s subscriber growth.
Netflix, Inc. (NFLX)
Despite all the talk about rival streaming services taking business away from Netflix, the company is proving to be its own worst enemy. NFLX stock is down more than 20% since the company’s quarterly earnings report, and slowing subscriber growth and market saturation are becoming a real issue for Netflix. The problem is compounded by over-the-top spending on content acquisition/production.
As a result, the technical picture has degraded rapidly, with NFLX plunging to test former round-number support near $90. This region is key for options traders, with 1,500 calls and nearly 10,000 puts currently open at the May $90 strike.
A breach here could signal additional losses for NFLX, with a return to February’s lows a likelihood.
As of this writing, Joseph Hargett did not hold a position in any of the aforementioned securities.
