U.S. stock futures are down across the board this morning, as falling oil prices and mediocre earnings are failing to inspire confidence ahead of the weekend. Crude futures fell 2.3% on Thursday, putting black gold back near $50 per barrel, and even blowout earnings from Microsoft Corporation (NASDAQ:MSFT) last night have been unable to lift Nasdaq Composite futures out of the red.
Heading into the open, futures on the Dow Jones Industrial Average have dropped 0.36%, with S&P 500 Index futures off 0.37% and Nasdaq futures down 0.13%.
Thursday’s options activity was brisk, with 14.6 million calls and 13.1 million puts changing hands on the session. Over on the CBOE, the single-session equity put/call volume ratio fell to a three-week low at 0.53. The 10-day moving average arrived at 0.65.
Driving Thursday’s activity, Microsoft released its fiscal first-quarter earnings report after the close last night, and MSFT options speculators were in full swing ahead of the report. Traders also continued to pile into call options on Apple Inc. (NASDAQ:AAPL), which is set to release its quarterly report after the close next Tuesday.
Finally, United States Steel Corporation (NYSE:X) options traders were also diving into calls, though most of the speculation appears targeted at pre-earnings price action.
Microsoft Corporation (MSFT)
For the past three months, MSFT stock was locked in a tight range between $56 and $58, with little in the way of drivers for movement. That changed last night, when Microsoft surprised Wall Street with a first-quarter profit of 76 cents per share on revenue of $20.5 billion. Analysts were expecting earnings of 68 cents a share on sales of $21.7 billion. While revenue was a bit light compared to expectations, cloud revenue blew the doors off by rising 116%, sparking a premarket buying spree on MSFT.
At last check, Microsoft stock is up more than 5% at $60.20.
The rally is good news for MSFT call traders, who piled into the shares yesterday ahead of earnings. Overall, some 800,000 contracts traded on MSFT, with calls snapping up 59% of the day’s take. Among Oct. 21 series options — which expire today — peak call open interest totals more than 110,000 contracts at the $60 strike, with the next most popular strike being the $55 put, where about 55,000 contracts resided.
Those Oct. 21 puts are set to open in the money, which could be a nice bullish win assuming the past three months of stagnation didn’t lure options traders into selling $60 strike calls as a bet on resistance in the area.
Apple Inc. (AAPL)
With earnings looming next week, Apple calls continued to dominate the options pits. Total volume came in at 830,000 contracts, with calls accounting for an above-average 64% of the day’s take. But not all activity was directed at earnings speculation.
According to data from Trade-Alert.com, a block of 15,000 February 2017, 17 series calls traded at the deep out-of-the-money $125 strike for an ask price of $2.95, or $295 per contract. The trade was marked “spread,” but the other leg of the trade was not immediately apparent.
Keeping an eye on next week’s earnings, analysts are expecting a profit of $1.65 per share on revenue of $46.89 billion — both figures down year-over-year. EarningsWhispers.com puts Apple’s whisper number at $1.75 per share.
United States Steel Corporation (X)
The past couple of years have not been kinds to commodities, and steel has been no exception. Declining construction spending and a chill on the Chinese economy has pressured bottom lines across the industry, and United States Steel has been beaten up along the way, down 51% since peaking in late 2014. But X stock has recently shown signs of life, and with an earnings report less than two weeks away, the shares could be poised to make a move.
Options traders are certainly betting on just such a short-term development. Volume on X yesterday hit an above-average 284,000 contracts, with calls gobbling up 69% of the day’s take. A closer look at the data from Trade-Alert.com indicates that at least one trader has thier sights set on $20.
Specifically, the trader opened a weekly October 28 series $18.50/$20 call spread for an ask price of 37 cents, or $37 per pair of contracts. The maximum profit on the trade is $1.13, or $113 per pair of contracts, and is realized if X stock trades at or above $20 when these options expire at the end of next week.
U.S. Steel doesn’t report earnings until November 2 — analysts are expecting 87 cents per share on sales of $2.82 billion — so the trader appears to be looking for a pre-earnings run into overhead resistance at $20.
As of this writing, Joseph Hargett did not hold a position in any of the aforementioned securities.
