U.S. stock futures are trading higher this morning, as Wall Street tried to put an end to a four-session slide. Still, traders are debating options ahead of Federal Reserve Chairwoman Janet Yellen’s speech this afternoon on monetary policy.
A rate hike isn’t expected, but all will be paying close attention to Yellen’s language, looking for hawkish signs that might give clues to future rate hikes.
Against this backdrop, futures on the Dow Jones Industrial Average have added 0.22%, S&P 500 futures have risen 0.2% and Nasdaq-100 futures have gained 0.19%.
Option volume spiked on Tuesday, rising to a near-term peak as 15.7 million calls and 16.4 million puts changed hands in total. ETFs lined the top of the most actives listing, with the SPDR S&P 500 ETF Trust (NYSEARCA:SPY) attracting 6.4 million contracts, 4.1 million of which were puts.
Since the ratio hit an annual low last week, activity on the CBOE has turned more bearish, coinciding with a four-day slide on Wall Street. On Tuesday, the single-session equity put/call volume ratio extended its recent gains to arrive at 0.79. The 10-day moving average hit another one-week high of 0.67.
In equity option news, Apple Inc.’s (NASDAQ:AAPL) WWDC rolls on with heavy coverage in the mainstream media, but Wall Street is largely yawning at the event, according to Jim Cramer. Elsewhere, Bank of America Corp. (NYSE:BAC) options activity is heating up ahead of today’s Fed meeting and the coming Brexit vote. Finally, Twitter Inc (NYSE:TWTR) rallied for a second straight day on hopes that a white knight would emerge to buy the firm in the wake of the recent LinkedIn Corp (NASDAQ:LNKD) acquisition.
Apple Inc. (AAPL)
There is a considerable disconnect between the mainstream media’s positive coverage of Apple’s WWDC and Wall Street’s reaction to the event. A flood of positive articles have emerged praising the OS updates and Apple Music’s updates, and yet AAPL stock only added 0.12% on Tuesday. Jim Cramer took note of the AAPL phenomenon yesterday on “Squawk On The Street.”
“The disconnect between all the great things that Tim Cook is up to versus how we are yawning is funny,” Cramer said.
In the options pits, AAPL is also seeing lackluster follow through from this week’s WWDC. Overall volume has remained muted, coming in at roughly 800,000 contracts yesterday. Furthermore, call volume as a percentage of total volume is also below average, with calls accounting for only 57% of yesterday’s total.
That said, optimism still reigns in AAPL’s options configuration, as the June/July put/call open interest ratio remains in the bottom half of its annual range at 0.79, with call OI still easily outnumbering put OI.
Bank of America Corp. (BAC)
With Fed Chair Janet Yellen set to speak on monetary policy this afternoon, BAC is back for another round of “What will the Fed do this time?” Banking stocks have been jerked around in 2016 by an indecisive Fed and extenuating overseas events, like Brexit. The result has been a narrowing of the gap between long-term and short-term interest rates — a development that has sapped investment revenue for Bank of America and other leading investment banks.
Heading into today’s Fed event, options traders appeared to be only mildly optimistic, with calls accounting for about 57% of the total 683,000 contracts that changed hands on BAC. Looking at June 17 series OI, call traders have set their sights on the out-of-the-money $15 strike, where 109,000 contracts currently reside. By comparison, peak put OI for the series totals just 61,600 contracts at the in-the-money $14 strike.
Twitter Inc (TWTR)
Microsoft Corporation’s (NASDAQ:MSFT) $26.2 billion buyout of professional social media giant LinkedIn has sparked another round of consolidation speculation within the sector. As usual, TWTR is being batted around as the most promising prospect for a buyout, but, once again, this may be wishful thinking on the Street’s part. In fact, Twitter moved to invest $70 million in music service SoundCloud — a company Twitter was once rumored to be buying.
Options traders love speculation, and so TWTR options activity has seen a resurgence this week. On Tuesday, TWTR saw 310,000 contracts cross the tape, with 67% of those changing hands as calls. This bullish bias is no joke, as TWTR’s June/July put/call open interest ratio currently rests at 0.43, with calls more than doubling puts among near-term options.
Technically, TWTR has broken out above resistance at $15, but the shares remain trapped below their 50-day moving average. A breakout here could validate some of these short-term bulls, but long-term investors should remain wary.
As of this writing, Joseph Hargett did not hold a position in any of the aforementioned securities.
