U.S. stock futures are trading sharply lower heading into the open this morning, as weak Chinese economic data and an Australian interest-rate cut fueled fears of a weakening global economy.
Stateside, Wall Street is awaiting a pair of Fed speeches and monthly auto sales data, leaving traders with few options.
At last check, futures on the Dow Jones Industrial Average were down 0.65%, with S&P 500 futures off 0.66% and Nasdaq-100 futures were lower by 0.65%.
Options volume remained above average on Monday, though much of the session’s activity was centered on ETFs — a sign of caution and hedging among options traders. While the CBOE single-session equity put/call volume ratio dipped on Monday to 0.74, the 10-day moving average continued to trek higher, coming in at a one-month high of 0.70.
In equity options news, Baidu Inc (ADR) (NASDAQ:BIDU) is in the hot seat after Chinese officials launched an investigation into cancer treatment advertising on the site. Meanwhile, Pfizer Inc. (NYSE:PFE) attracted put option activity ahead of this morning’s first-quarter earnings report. Finally, Valeant Pharmaceuticals Intl Inc (NYSE:VRX) continues to see fallout from extremely bearish investor commentary from Charlie Munger and Warren Buffett.
Baidu Inc (ADR) (BIDU)
In a strange twist of events, Chinese officials are investigating Baidu because a cancer treatment advertised on the company’s website was not as effective as the ads made it out to be. Despite receiving the treatment after following the ad, Wei Zexi died anyway, prompting an official inquiry by the Chinese government.
That prompted a nearly 8% plunge in BIDU stock on Monday — a sharp reversal from Friday’s post-earnings spike toward the $200 level in the wake of Baidu’s quarterly earnings report.
Options traders reacted in predictable fashion, with puts accounting for 68% of Monday’s total volume of 168,000 contracts. Unfortunately for short-term call traders, the 2,250 call contracts at the May 6 series $185 strike are now trading well out of the money. On the other hand, there are roughly 1,200 puts open at the $177.50 strike now trading in the money, with little in the way of potential short-term put support below BIDU stock.
Pfizer Inc. (PFE)
Put options were quite active heading into this morning’s quarterly report, but bears may be in for a surprise on the open — broad-market willing. PFE has traded as much as 3% higher in premarket action after Pfizer posted first-quarter earnings of 67 cents per share, topping the consensus estimate for 55 cents per share.
Revenue was also better than expected, rising 20% year-over-year to $13.01 billion, compared to the Street’s view for $12.07 billion.
Options traders didn’t put much stock in a PFE post-earnings rally. On Monday, volume rose to nearly 300,000 contracts, with puts snapping up 53% of the day’s take. Checking in on May 6 series OI, PFE is set to open north of some 7,600 call contracts at the $33 strike and 4,500 calls at the $33.50 strike.
Furthermore, there are about 22,000 put contracts at both the $33 and $32.50 strikes in the May 6 series. If this is a sign of bull put spread activity, these traders could be in good shape heading into Friday’s expiration.
Valeant Pharmaceuticals Intl Inc (VRX)
Finally, Valeant Pharmaceuticals continued to be haunted by Friday’s bearish commentary from Charlie Munger and Warren Buffett. At this year’s annual Berkshire Hathaway shareholder meeting, Munger said “Valeant, of course was a sewer.” Buffett followed hard on Munger’s comments on Monday, stating “I don’t think you’d want your son to grow up and run a company in the manner that Valeant was run.”
Despite the negativity, options traders were drawn to VRX calls on Monday. Total volume came in at more than 341,000 contracts, with calls accounting for 62% of the day’s take.
VRX’s May 6 series OI configuration is all over the place. On the call side, there are 3,600 contracts at the $36 strike, 2,500 at the $33 and 3,180 at the $30 strike. Meanwhile, the $36 strike also sports 4,600 puts with another 6,200 puts open at the $30.50 strike as volatility continues to wreak havoc in VRX’s options backdrop.
As of this writing, Joseph Hargett did not hold a position in any of the aforementioned securities.
