Wall Street is in the mood for profit taking, as U.S. stock futures point toward heavy losses heading into the open this morning.
Uncertainty is the name of the game on the Street, after Federal Reserve Gov. Lael Brainard said the Federal Reserve should be cautious in raising rates to avoid a low-growth, low-inflation environment. The comments stand in stark contrast to the Fed’s recent message that a rate-hike is coming sooner rather than later.
Combined with a 2.4% plunge in oil prices, the Fed’s mixed message has helped push futures on the Dow Jones Industrial Average down 0.62%, while S&P 500 futures are off 0.64% and the Nasdaq-100 has shed 0.21%.
Monday’s options activity remained well above average, though action was split near evenly between puts and calls. Overall, 15.5 million calls and 15.3 million puts changed hands on the session. Over on the CBOE, the single-session equity put/call volume ratio arrived at 0.64, while the 10-day moving average slipped to a one-week low of 0.63.
Driving Monday’s options volume, Amazon.com, Inc. (NASDAQ:AMZN) was reiterated at MKM Partners with a “buy” rating, while Cantor Fitzgerald did the same with Netflix, Inc. (NASDAQ:NFLX). Meanwhile, short interest spiked on Bank of America Corp (NYSE:BAC), suggesting that a recent surge in call options activity may have an ulterior motive.
Amazon.com, Inc. (AMZN)
Like the rest of the market, Amazon.com stock suffered a sharp pullback on Friday last week, with the shares diving nearly 3% heading into the weekend. AMZN stock’s decline was halted by its 50-day moving average in the $760 region.
In reaction to the sudden drop, analysts at MKM Partners issued a research report on Monday reiterating their “buy” rating on AMZN stock with a price target of $995. According to Zacks, AMZN currently sports 26 buy ratings, compared to two holds and one sell rating.
Options traders responding by sending some 173,000 contracts across the tape on AMZN, with calls accounting for an above-average 56% of the day’s take. Despite yesterday’s bounce back to $771, AMZN is still trading well below peak September 16 series call open interest, totaling roughly 7,000 contracts at the $780 strike.
What’s more, AMZN’s September put/call open interest ratio has edged higher over the past week to rest at 0.85, as puts are added at a faster rate than calls among near-term options.
Netflix, Inc. (NFLX)
NFLX stock found itself in a similar boat to Amazon.com on Friday, plunging to support near its 50-day moving average. This time, Cantor Fitzgerald moved in to reassure clients of its “buy” rating on Netflix. The reiteration follows on the heels of Thursday’s upgrade to “buy” from “hold” at Vetr. Overall, NFLX currently sports 17 buys, nine holds and four sell ratings, according to Zacks.
Options traders appeared to be more optimistic toward NFLX than AMZN on Monday. Total volume came in at near 173,000 contracts, with calls snapping up 61% of the day’s take — well above average.
NFLX, however, is facing severe options congestion at the $100 strike in the September series. Currently, 38,000 calls and 18,000 puts are open at the September $100 strike. Taking out $100 would be a major coup for NFLX bulls, but the shares are facing technical resistance at their descending 200-day moving average in the region, in addition to options resistance and psychological/technical resistance at $100, making a breakout this week appear unlikely.
Bank of America Corp (BAC)
The recent hawkish commentary from the Fed has been good for interest-rate-sensitive Bank of America — higher rates would bolster revenue at the company’s investment unit. But some investors appear to have already arrived at Federal Reserve Gov. Lael Brainard’s opinion that rates will remain lower for longer than Wall Street is expecting, as short interest on BAC stock soared 12% during the most recent period.
As a result, more than 112 million shares of BAC stock are now sold short, accounting for more than 1% of the shares’ total float.
This rise in short interest may cast recent call options activity on BAC in a new light, as short sellers often buy call options as a way to hedge their open short positions. Speaking of call options, they accounted for a hefty 71% of yesterday’s total volume of 735,000 contracts on BAC.
With the stock locked in a battle to overtake $16, this strike has attracted more than 169,000 contracts in open interest in the September series. By comparison, peak put OI for the series totals just 90,000 contracts at the out-of-the-money $14 strike.
As of this writing, Joseph Hargett did not hold a position in any of the aforementioned securities.
