Wall Street is set to open higher this morning, as traders weigh their options against higher oil prices and a disappointing start to earnings season from Alcoa Inc (NYSE:AA). The aluminum giant posted a 92% year-over-year decline in earnings, underscoring analyst fears that this could be one of the worst earnings seasons in years.
Against this backdrop, U.S. stock futures on the Dow Jones Industrial Average have added 0.14% heading into the open, while S&P 500 futures have risen 0.21% and Nasdaq Composite futures are higher by 0.21%.
Options volume was strong on Monday, with traders repositioning ahead of a wave of corporate earnings and April expiration. Calls were the talk of the options pits, oddly enough, with the CBOE single-session equity put/call volume ratio retreating to 0.65. Meanwhile, the 10-day moving average held at a one-month low of 0.66.
In equity options news, Alcoa put options were hot ahead of last night’s first-quarter report, as traders sought out protection ahead of what turned out to be rather disappointing results. Elsewhere, Chesapeake Energy Corporation (NYSE:CHK) stock surged on news the company has secured its credit lines, while Netflix, Inc. (NASDAQ:NFLX) stock remained indifferent to speculation that Walt Disney Co (NYSE:DIS) should buy out the online media streaming giant.
Alcoa Inc (AA)
After the close last night, Alcoa offered up a rather dismal start to corporate earnings season. The aluminum giant saw first-quarter earnings fall 92% to seven cents per share on $4.95 billion in revenue, versus expectations for earnings of two cents per share on $5.14 billion in revenue. Alcoa also reported negative free cash flow of $681 million for the first quarter.
AA stock fell more than 4% in after-hours trading following the report, confirming options traders’ fears. Ahead of the results, puts dominated the options pits, accounting for 55% of the 538,000 contracts traded on AA stock.
With the shares hovering near $9.39 at last check, the more than 20,000 calls open at the April 15 series $9 strike are at risk, while an April $9/$9.50 bear put spread is looking to have been smart money. Currently, there are 34,000 put contracts open at the April $9.50 strike, with some 71,000 puts at the $9 strike.
Chesapeake Energy Corporation (CHK)
CHK stock surged nearly 20% on Monday, after Chesapeake Energy announced that it had secured a deal with creditors for its revolving $4 billion credit facilities. However, Chesapeake is still facing declining rig counts, and that will continue to undermine the company’s bottom line.
For now, options traders appear to be split on CHK. Nearly 530,000 contracts crossed the tape on CHK yesterday, with calls and puts drawing nearly equal volume. CHK is currently trending toward $5, drawing attention to the roughly 54,000 calls and 58,000 puts open at the April 15 series $5 strike. With heavy open interest also accumulated at the $4.50 strike, look for CHK to enter a short-term trading range through April expiration.
Netflix, Inc. (NFLX)
The rumor mill is churning once again on Netflix. This time, analysts across Wall Street are suggesting that media giant Walt Disney could solve many of its cable subscription issues by purchasing Netflix. Disney has been hemorrhaging cable subscribers, especially in its ESPN unit, and, according to analysts at BTIG, “Buying Netflix is an awfully expensive acquire, but it could be Disney’s only hope.”
NFLX traders aren’t buying the hype, however, as the stock continues to retreat from overhead resistance at its 200-day moving average in the $106 region. Options traders are also not jumping on the speculation train, which should give you some idea of the unlikelihood of such a tie-up.
On Monday, volume was comparatively light for NFLX — especially in light of the Disney speculation — with fewer than 200,000 contracts changing hands. Calls accounted for 56% of the day’s take. As for April 15 OI, traders should keep a close eye on the $100 strike, which is currently home to more than 33,000 calls and 26,000 puts. A breach here could mark the beginning of a more significant downtrend for NFLX stock.
As of this writing, Joseph Hargett did not hold a position in any of the aforementioned securities.
