U.S. stock futures are headed lower this morning, as Wall Street takes some profit off the table following Monday’s record highs.
A dip in the U.S. dollar is also applying pressure to stocks, as investors wait for a series of economic reports, including July’s consumer prices, housing starts, building permits, industrial production and capacity utilization. Finally, oil hit a one-month high on Monday, and was last seen up a quarter at $45.96 in overseas trading.
Against this backdrop, futures on the Dow Jones Industrial Average are off 0.16%, with S&P 500 futures down 0.15% and Nasdaq-100 futures lower by 0.13%.
Options activity remained elevated on Monday, and, with monthly August expiration this Friday, the trend should hold through the week. Overall, 15.8 million calls and 11.4 million puts crossed the tape yesterday, with the call bias pushing the CBOE single-session equity put/call volume ratio to 0.51 — its lowest point since May 27. As a result, the 10-day moving average fell to a four-week low of 0.60.
Driving Monday’s options activity, Lockheed Martin Corporation (NYSE:LMT) drew heavy out-of-the-money call options activity on Monday alongside a pair of deals for the Pentagon and the U.S. Navy. Meanwhile, Microsoft Corporation (NASDAQ:MSFT) options traders took aim at the company’s dividend via options-related capture strategies, and Twitter Inc (NYSE:TWTR) jumped on a potential deal with Apple Inc. (NASDAQ:AAPL).
Lockheed Martin Corporation (LMT)
LMT stock has risen steadily higher in 2016, gaining more than 20% year-to-date. Headline news surrounding the official launch of the F-35 Joint Strike Fighter has helped push LMT higher. Yesterday, Lockheed scored a new training contract with the U.S. Navy for the F-35, in addition to a $490 million contract modification with the Navy for the Aegis Weapon System MK-7.
The contracts alone were likely not enough to drive yesterday’s record LMT options volume, as a whopping 3.2 million options contracts traded on Lockheed. The activity was split near evenly between puts and calls. According to data from Trade-Alert.com, the majority of Monday’s activity was centered on the August 19 series $340 and $300 put and call strikes — both of which expire this Friday.
Monday’s activity appeared to cross at the ask price for both calls and puts, with blocks in the 39,500 contract range. With expiration on Friday, it would appear that we are seeing the closure of existing sold-to-open positions, though, with the put contracts that deep in the money, this seems unlikely due to the risk of assignment.
Microsoft Corporation (MSFT)
MSFT stock was also the target of heavy August 19 series options activity on Monday. Total volume swelled to a near-term high of 963,000 contracts, with calls snapping up 94% of the day’s take. While Lockheed saw the closure of a speculative options trade ahead of expiration, Microsoft was likely the target of dividend capture strategies.
Today, MSFT stock trades ex-dividend, with shareholders of record as of the close yesterday eligible for a payout of 36 cents per share on September 8. Ex-div dates always brings out heavy call volume for stocks thanks to a plethora of dividend capture strategies, with Trade-Alert.com highlighting several large MSFT blocks of August 19 series $55 calls crossing at the bid price of $3.25, or $325 per contract.
Twitter Inc (TWTR)
TWTR options traders jumped on news of a potential streaming partnership with Apple for Twitter’s video content offerings. Twitter holds the rights to stream NFL content during the upcoming season, and it plans to have an app ready for Apple TV before the season officially kicks off next month. Twitter is streaming 10 NFL Thursday night games, and has deals with both Major League Baseball and the National Hockey League.
The report drove heavy TWTR options volume on Monday, with roughly 613,000 contracts changing hands. Furthermore, call volume as a percentage of the whole was well above normal, as these typically bullish bets accounted for 77% of the day’s take.
With TWTR trading north of $20 following yesterday’s nearly 7% jump, the stock is hovering above all major call OI strikes for the August series. However, a 0.75% dip in premarket trading could push TWTR toward nearly 16,000 calls at the $20 strike, creating a bit of turbulence heading into Friday’s expiration.
As of this writing, Joseph Hargett did not hold a position in any of the aforementioned securities.
