U.S. stock futures are trading flat-to-lower heading into the open this morning, as Wall Street braces for weekly jobless claims data and a pair of Federal Reserve speeches.
The Fed appears to be laying the groundwork for an interest-rate hike later this year, with July’s meeting notes showing division on how soon the next hike should occur. New York Fed President William Dudley and San Francisco Fed President John Williams are both slated to speak today.
At last check, futures on the Dow Jones Industrial Average are down 0.05%, while S&P 500 futures are down 0.09% and Nasdaq-100 futures have shed o.14%.
Options activity crept higher on Wednesday, with about 14.1 million calls and 12.6 million puts crossing the tape. The rising preference for puts in the broader exchange was belied by a drop in the CBOE single-session equity put/call volume ratio to 0.59 from Tuesday’s perch at 0.70. The 10-day moving average held at 0.59.
Driving yesterday’s options activity, the Federal Reserve’s recent interest-rate-hike banter has had a bullish effect on Bank of America Corp. (NYSE:BAC), driving call volume sharply higher. Elsewhere, Cisco Systems, Inc. (NASDAQ:CSCO) announced layoffs and better-than-expected fourth-quarter earnings, while Target Corporation (NYSE:TGT) reported lower revenue and cut its full-year outlook.
Bank of America Corp (BAC)
BAC stock is making another run at breaking out above $15 this week, as the Federal Reserve is ramping up discussion on another potential interest-rate hike later this year. According to the minutes from the July Fed policy meeting, the group voted 9 to 1 in favor of keeping rates steady, but two Fed officials pushed for a hike. Another rate hike this year would be positive for Bank of America’s investment unit, which should see revenue rise on higher yields.
Options traders appear to have come to the same conclusion, with calls accounting for 75% of the day’s total volume of more than 814,000 contracts. With BAC hovering near $15.15, the shares are just above peak August call open interest of roughly 123,000 contracts. What’s more, there are another 237,000-plus calls open at the $15 strike in the monthly September series. A clean break with $15 could be a significant bullish indicator for BAC stock.
Cisco Systems, Inc. (CSCO)
CSCO stock is trading roughly 1.4% lower in premarket trading, despite topping Wall Street’s fourth-quarter earnings expectations and announcing the layoff of 5,500 employees. By the numbers, Cisco earned 63 cents per share, three cents better than the consensus, while revenue came in at $12.64 billion compared to the Street’s target of $12.57 billion. Cisco also announced a restructuring plan that eliminates about 7% of its workforce — a return to a cyclical layoff pattern the company skipped in 2015.
Options activity on CSCO was mixed heading into the report. Some 587,000 contracts traded on the stock yesterday, with calls managing to eke out 56% of the day’s take. CSCO stock has fallen steadily since hitting highs not seen since 2007 on Monday. With the shares poised to open near $30.30 today, CSCO is in danger of dipping below more than 39,000 calls at the August $30 strike. There are also about 29,000 calls at $30 in the September series, which could create additional headwinds for CSCO going forward.
Target Corporation (TGT)
Target reported lackluster second-quarter earnings on Wednesday, driving TGT stock nearly 6.5% lower on the session. For the quarter, Target beat earnings expectations by 11 cents per share, while revenue of $16.17 billion was in line. However, Target lowered its 2016 guidance from a range of $5.20 to $5.40 per share to between $4.80 and $5.20 per share.
The lowered expectations for the coming holiday shopping season was not lost on options traders, whom flooded TGT with puts on Wednesday. Total volume rose to 280,000 contracts, with puts snapping up a hefty 76% of the day’s take.
TGT is now perched just above key support at the $70 strike, where 6,200 puts reside in the August series, with another 20,600 puts open here in the September series.
As of this writing, Joseph Hargett did not hold a position in any of the aforementioned securities.
