U.S. stock futures are trading broadly higher this morning, as Wall Street continues to ride high on hopes for a vote against the U.K.’s exit from the European Union –Brexit. Meanwhile, Federal Reserve Chairwoman Janet Yellen will give her semi-annual speech before the Senate Banking Committee later this morning.
Heading into the open, futures on the Dow Jones Industrial Average were last seen higher by 0.33%, with S&P 500 futures up 0.41% and Nasdaq-100 futures rising 0.44%.
Option volume dropped sharply on Monday, as a spike in volatility following a positive weekend Brexit poll made buying options unpalatable for many traders. Still, 13.7 million calls and 11.6 million puts changed hands on the day, keeping volume near average levels for the past three months.
Over on the CBOE, the single-session equity put/call volume ratio fell t0 a three-week low of 0.60, while the 10-day moving average ticked higher to 0.70 — a one-month high.
In equity option news, Bank of America Corp. (NYSE:BAC) faces a double-whammy on Thursday, with Federal stress tests and the Brexit vote. Meanwhile, Facebook Inc (NASDAQ:FB) shareholders voted to create a new share class to ensure that CEO Mark Zuckerberg remains in control of the company. Finally, Twitter Inc (NYSE:TWTR) buys AI start-up firm Magic Pony to help with image processing.
Bank of America Corp. (BAC)
It’s a big week for BAC stockholders, as Bank of America will face a pair of key reports on Thursday that could make or break the shares.
The first event is the Brexit vote, which, while polls are leaning toward the U.K. remaining in the EU, could still wreak havoc across the board, especially for BAC, which has extensive dealings in Britain. The second, and arguably more important for Bank of America is the Fed’s stress test results.
BofA has failed to live up to expectations in the past two Federal stress tests, and a third failure would severely undermine confidence in the company’s leadership. Passing the test, however, could boost shareholder payouts by 63%, with analysts projecting Bank of America could disburse $9.1 billion through dividends and stock buybacks next year.
With the stakes this high, options traders have piled into BAC calls and puts at an elevated rate during the past week. On Monday, BAC saw volume swell to more than 632,000 contracts, with calls snapping up 75% of the day’s take.
The highlight of Monday’s call activity was one block of 50,000 September 16 series $14 strike calls, which, according to Trade-Alert.com, traded at the ask price of 56 cents, or $56 per contract. Breakeven for this trade rests at $14.56 — a 7.8% gain from Monday’s close.
Facebook Inc (FB)
In order to allow CEO Mark Zuckerberg to continue to donate his FB stock holdings to charity and still maintain control of the company, Facebook shareholders voted to create a third class of FB shares on Monday. The proposal for the new Class C was announced in Facebook’s first-quarter earnings report in April, and will involve a three-to-one stock split, where Facebook would issue two nonvoting shares as a one-time stock dividend for each Class A and Class B share held.
Options traders picked up the pace on FB activity on Monday, sending 491,000 contracts across the tape. Calls made up 64% of Monday’s activity, in line with FB’s average for the past month.
Overall, calls remain in charge for the July 15 series, with FB’s put/call open interest ratio arriving at 0.63. Peak OI for the series totals more than 37,000 contracts at the out-of-the-money $120 strike.
Twitter Inc (TWTR)
Merger and acquisition speculation has been in the air in the tech sector since Microsoft Corporation (NASDAQ:MSFT) announced it was buying LinkedIn Corp (NASDAQ:LNKD) last week. Twitter emerged as the next likely buyout candidate, but, since then, Twitter has gone on a buying spree instead.
The company invested $70 million in SoundCloud a week ago, and yesterday announced it was buying London-based AI firm Magic Pony. According to reports, Twitter is paying $150 million for Magic Pony, which it plans to use to improve video and picture content delivery.
TWTR options traders have remained on high alert since the Microsoft acquisition, hoping for buyout news. Yesterday saw more than 211,000 contracts change hands on TWTR, with calls accounting for an impressive 75% of the day’s take.
A considerable amount of call OI has built up in the July 15 series, pushing TWTR’s put/call open interest ratio for the month to a near-term low of 0.41, with call OI more than doubling put OI in the series.
As of this writing, Joseph Hargett did not hold a position in any of the aforementioned securities.
