Wall Street is in for a bit of a rebound this morning, as investors draw strength from a rebound in oil prices. Later this morning, minutes from the latest Federal Reserve monetary policy meeting will be released, as well as weekly U.S. petroleum stockpiles.
Heading into the open, U.S. stock futures on the Dow Jones Industrial Average are up 0.17%, while S&P 500 futures have added 0.18% and Nasdaq Composite futures are higher by 0.17%.
Options volume came in above average on Tuesday, with puts gaining traction amid a sharp sell-off in stocks. On the CBOE, the single-session equity put/call volume ratio rose to 0.69, while the 10-day moving average held at 0.71.
In equity options news, the breakup between Pfizer Inc. (NYSE:PFE) and Allergan plc Ordinary Shares (NYSE:AGN) was the biggest story of the day on Tuesday, and options traders rushed to speculate on the duo. Elsewhere, AT&T Inc. (NYSE:T) saw an unusual spike in volume ahead of the stock’s ex-dividend date.
Pfizer Inc. (PFE)
The $160 billion merger between Pfizer and Allergan is now off — thanks to new rules from the U.S. Treasury Department. There was no secret that the Pfizer merger was what is known as a tax-inversion deal, whereby U.S. companies “relocate” overseas to a company with more favorable corporate taxes. New Treasury rules make it much more difficult for companies to exploit this increasingly popular loophole.
PFE stock reacted positively to the news, with the shares gaining more than 2% on Tuesday. Options traders were also optimistic, as calls accounted for 67% of the day’s total volume of 683,000 contracts. Looking ahead to the rest of the weekly, traders should keep an eye on the weekly Apr 8 series $31 put and $31.50 call, with each sporting OI of more than 5,100 contracts each.
Allergan plc Ordinary Shares (AGN)
While PFE stock rallied on the breakup news, AGN stock plunged roughly 15%. While Allergan will receive roughly $400 million from Pfizer in the breakup, the company has practically made a business out of tax-inversion deals during the past two years. New Treasury rules would limit participation in such deals if the company has completed one within the past 36 months.
AGN options activity was considerably less optimistic than PFE’s. Overall, more than 355,000 contracts traded on Allergan yesterday, with puts edging out calls with 51% of the take. In the April 8 series, AGN is trading below most major call accumulations, though there are large put accumulations at the $220 and $225 put strikes, totaling roughly 1,700 contracts each and hinting at put spread activity.
AT&T Inc. (T)
Outside of PFE and AGN, the surprise mover on the top 10 option volume charts on Tuesday was AT&T. The stock saw record short-term volume, with more than 1.1 million contracts changing hands on the session. What’s more, calls made up an impressive 93% of the day’s take.
Unfortunately for speculators, the options activity was not centered on something as grand as PFE’s multibillion-dollar merger breakup. However, T stock is trading ex-dividend today, with Tuesday’s close being the last opportunity to own or control T stock to be eligible for AT&T’s May 2 dividend of 48 cents per share.
As of this writing, Joseph Hargett did not hold a position in any of the aforementioned securities.
