U.S. stock futures are headed higher this morning, as Wall Street weighs its options ahead of key new-home sales data
At this point, any positive economic data could reinforce hawkish comments out of the Federal Reserve for an interest rate hike next month. Fed watchers are currently pricing in a 30% chance of a June hike and a 46% chance of a July hike.
Heading into the open, futures on the Dow Jones Industrial Average are up 0.37%, with S&P 500 futures higher by 0.39% and Nasdaq-100 futures up 0.38%.
Monday saw option volume return to normal levels, with 11.6 million calls and 9.6 million puts changing hands. As for the CBOE, the single-session equity put/call volume ratio plunged to a one-month low of 0.65, dragging the 10-day moving average to a three-week low of 0.77.
In equity option news, Apple Inc. (NASDAQ:AAPL) saw call volume recover to just below normal levels on Monday, as the Warren Buffett rally continues to push AAPL stock higher. Meanwhile, Bank of America Corp (NYSE:BAC) also saw renewed call volume as an appeals court voided a $1.27 billion mortgage penalty, while Gap Inc (NYSE:GPS) extended its earnings-defying 5% rally amid a flurry of call activity.
Apple Inc. (AAPL)
It would appear that AAPL investors trust Buffett’s judgement over that of Carl Ichan. Just after Ichan announced that he had completely divested his position in AAPL stock, Buffett’s Berkshire Hathaway Inc. (BRK.A, BRK.B) moved in to take a rather sizeable stake in Apple. Since that move, AAPL stock has risen in four of the past six trading sessions, taking out key resistance at $95 on Monday.
Call options traders are beginning to come back to AAPL in terms of daily volume. Yesterday saw calls snatch up 61% of the more than one million AAPL contracts changing hands. The break above $95 places AAPL above heavy weekly May 27 series call open interest there, totaling some 13,000 contracts. The next potential hurdle for AAPL on a short-term basis is the $100 mark, with more than 15,000 calls open in the weekly May series.
Bank of America Corp (BAC)
Bank of America stock could be in for a positive session today, after a Federal appeals court voided a $1.27 billion mortgage penalty related to mortgage fraud leading up to the 2008 market crash. According to the court, which handed down a 3-0 decision in favor of BofA, “The trial evidence fails to demonstrate the contemporaneous fraudulent intent necessary to prove a scheme to defraud through contractual promises.”
Ahead of the judgement, options traders heavily favored BAC calls, which made up 60% of the more than 337,000 contracts in total volume. BAC is currently perched just below $14.50, which is home to peak weekly May 27 call OI, totaling 43,000 contracts. Another 34,000 call contracts are also open at the $15 strike in the May series, hinting that options traders are looking for a short-term rally out of BAC stock.
Gap Inc (GPS)
Judging from Gap’s first-quarter earnings report, the company is in trouble. Sales were down across the board, with earnings and revenue just barely in line with Wall Street’s expectations. The report elicited a wealth of negativity from the analyst community, including a GPS stock downgrade from Stifel.
And yet, GPS has rallied roughly 5% since releasing its abysmal quarterly report. As analysts at Trefis explain, part of the reason for the rally is Gap’s fat trimming, including discontinuing Old Navy operations in Japan.
GPS was also heavily oversold heading into its quarterly report, and stock buyers and options traders were quick to look for a relief rally. On Monday, GPS options traders snapped up more than 223,000 contracts, with calls accounting for a whopping 81% of the day’s volume.
As of this writing, Joseph Hargett did not hold a position in any of the aforementioned securities.
