U.S. stock futures are trading broadly higher this morning, after Federal Reserve Chairwoman Janet Yellen dropped subtle hints last night that interest-rate hikes had been pushed back once again. In a speech late yesterday, Yellen said that a rate hike would be appropriate, but omitted the “in the coming months” wording from her monetary policy statement.
Heading into the open, futures on the Dow Jones Industrial Average are up 0.26%, futures on the S&P 500 have added 0.2%% and Nasdaq-100 futures are 0.19% higher.
Option volume pulled back from Friday’s near-term high yesterday, with about 13.2 million calls and 10.3 million puts crossing the tape. Exchange-traded funds were once again on top, though put volume fell considerably as the 4.6 million contracts traded on the SPDR S&P 500 ETF Trust (NYSEARCA:SPY) were split near evenly between puts and calls.
On the CBOE, the single-session equity put/call volume ratio held at 0.59, while the 10-day moving average slipped further into annual-low territory to arrive at 0.59.
In equity option news, Valeant Pharmaceuticals Intl Inc (NYSE:VRX) saw near-term high option volume ahead of this morning’s quarterly earnings release … which Valeant bombed. Elsewhere, Vale SA (ADR) (NYSE:VALE) continued to see follow-through buying on Monday on layoffs and reforms in Brazil. Finally, Chesapeake Energy Corporation (NYSE:CHK) attracted a wave of call activity as oil and natural gas prices rebounded sharply.
Valeant Pharmaceuticals Intl Inc (VRX)
It may have taken a valiant effort to get Valeant Pharmaceuticals into the earnings confessional, but the company’s first-quarter report was far from its best effort. Earnings came in at $1.27 per share, below expectations of $1.37 per share. Valeant blamed the miss on a 43% plunge in sales at its dermatology unit. Revenue also missed, coming in at $2.37 billion, just shy of Wall Street’s target of $2.38 billion.
Furthermore, many were expecting Valeant to lower guidance, but not quite that low. Valeant cut its full-year earnings forecast to $6.60 to $7 per share from $8.50 to $9.50, with revenue now seen coming in at $9.9 billion to $10.1 billion.
Options traders weren’t exactly taken with VRX ahead of the event. Volume came in at 246,000 contracts, with calls only accounting for 52% of the day’s take. Currently, peak weekly June 10 series call open interest totals 8,990 contracts at the $31 strike, while peak put OI for the series numbers 6,790 contracts at the $25 strike. VRX is currently down roughly 16% in premarket trading, placing those $25-strike puts well in the money.
Vale SA (ADR) (VALE)
VALE saw follow-through buying on Monday, as traders continued to snap up the stock in the wake of news that Samarco, a Vale joint venture, will reduce 40% of its employees and rumors that Vale CEO Murilo Ferreira could be on his way out. VALE soared more than 11% on Friday and gained another 6% on Monday.
Options traders have jumped on the rally, sending nearly 200,000 contracts across the tape on VALE yesterday. Call traders were lukewarm, however, snapping up only about 52% of Monday’s volume. Checking in with June 17 series OI, VALE is nearing peak call open interest of 44,000 contracts at the $5 strike, while peak put OI for the series totals a hefty 76,500 contracts at the $4 strike.
Chesapeake Energy Corporation (CHK)
CHK stock surged more than 11% on Monday, with analysts attributing the rally to a rebound in oil and natural gas prices. West Texas Intermediate crude for July delivery challenged $50 per barrel on Monday, while natural gas for July delivery edged closer to $2.50 yesterday.
In the first quarter, Chesapeake produced 61 million barrels of oil equivalent, including nine million barrels of crude and six million in liquid natural gas.
Options traders returned to CHK calls in style on Monday, with these typically bullish bets accounting for 58% of the more than 148,000 contracts traded yesterday. Traders are playing a bit of catchup following Monday’s rally, with peak June 17 series call OI totaling 10,800 contracts at the in-the-money $4.50 strike. Meanwhile, peak put OI for the series totals nearly 20,000 contracts at the out-of-the-money $3 strike.
As of this writing, Joseph Hargett did not hold a position in any of the aforementioned securities.
