Monday’s Vital Data: Microsoft Corporation (MSFT), Bank of America Corp (BAC) and Time Warner Inc (TWX)

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Monday merger mania is sweeping Wall Street this morning, as U.S. stock futures are in rally mode in the wake of no less than four separate merger and acquisition deals.

Monday’s Vital Data: Microsoft Corporation (MSFT), Bank of America Corp (BAC) and Time Warner Inc (TWX)Headlining the buying spree is AT&T Inc. (NYSE:T) which agreed to buy Time Warner Inc (NYSE:TWX) for $85 billion, followed by Rockwell Collins, Inc.’s (NYSE:COL) $6.4 billion buyout of B/E Aerospace Inc (NASDAQ:BEAV).

Completing the list, TD Ameritrade Holding Corp. (NASDAQ:AMTD) and Toronto-Dominion Bank (NYSE:TD) are looking to buy brokerage Scottrade Financial Services for $4 billion, according to Bloomberg, and Genworth Financial Inc (NYSE:GNW) has agreed to be bought for $2.7 billion by China Oceanwide Holdings Group Co.

Against this buying spree, futures on the Dow Jones Industrial Average have rallied 0.56%, with S&P 500 futures jumping 0.49% and Nasdaq-100 futures adding 0.71%.

Friday’s options activity was unusually brisk, as volume was driven by October expiration and the AT&T/Time Warner deal. Overall, 17.7 million calls and 15.5 million puts changing hands on the session. Over on the CBOE, the single-session equity put/call volume ratio ticked higher to 0.56, while the 10-day moving average slipped to 0.64.

Driving Friday’s activity, Microsoft Corporation (NASDAQ:MSFT) surged more than 4% on strong quarterly earnings, but came up short on overhead resistance. Meanwhile, Bank of America Corp (NYSE:BAC) traders continue to bet on a December rate hike, while speculation surged on Time Warner following AT&T’s proposed buyout.

Monday’s Vital Options Data: Microsoft Corporation (MSFT), Bank of America Corp (BAC) and Time Warner Inc (TWX)

Microsoft Corporation (MSFT)

Driven by a 116% surge in cloud revenue, MSFT stock soared more than 4% on Friday, hitting a new multiyear high. Cloud revenue came in at $6.4 billion, with gross margins of 49%. The success of Microsoft’s cloud services more than made up for flat-lining Windows sales and prompted the software giant to boost its dividend from 36 cents to 39 cents per share.

But MSFT’s rally left some options traders feeling flat. The stock came up just shy of closing north of $60 on Friday after breaching this key level briefly early in the session. The pullback left all but the most prepared options traders in the lurch. If you remember from Friday’s top ten list, you’ll know that the October 21 $60 strike was home to peak call OI for the series — more than 110,000 contracts.

As for Friday’s volume, closeouts and re-positioning were the biggest drivers for MSFT’s activity. Total volume came in at 981,000 contracts, with calls snapping up 75% of the day’s take. Looking at the weekly Oct 28 series, $60 remains front and center with 7,700 open call contracts, but it remains to be seen whether MSFT can topple resistance at $60 for good.

Bank of America Corp. (BAC)

BAC traders may finally be getting that rate hike they’ve longed for … if the Federal Reserve’s current line of thinking and the economy hold firm through December, that is.

Specifically, Federal Funds Futures are pricing in a 64% chance of a December rate hike, and minutes from the last FOMC meeting indicate that the 7-3 vote to leave rates unchanged was a “close call.” In fact, many voting members plan to raise rates “relatively soon.”

Higher interest rates mean bigger and better returns for Bank of America’s investing unit, which has struggled for growth in the current low-interest-rate environment. Seeing the upside potential, BAC options traders have ramped up their attention to calls in the past couple of months, with Friday extending that trend. More than 926,000 BAC contracts changed hands on Friday, with calls making up 74% of that total.

Still, even options traders are showing some restraint. Data from Trade-Alert.com reveals that the biggest contract traded on BAC on Friday was a 48,000 contract block at the Feb 2017 series $17 strike. The contracts traded at the ask price of 67 cents, or $67 per contract, and were marked as a “spread.” The other half of this spread was not readily apparent.

Time Warner Inc (TWX)

TWX stock soared 7.8% on Friday as rumors spread that AT&T was looking to buy the HBO and CNN parent company. By Sunday, the deal had officially come in, with AT&T offering up $85.4 billion in cash and stock, valuing TWX shares at $107.50 each.

The play looks defensive for AT&T, which has struggled with flat-lining wireless subscriber growth, though there are still many hurdles to overcome. For instance, both Hillary Clinton and Donald Trump are skeptical of the deal, while analysts are wondering if the potentially “sloppy conglomerate” would have any synergy at all.

These worries won’t stop speculative options traders, however. Before the deal was made official, TWX saw volume soar to a near-term high of 319,000 contracts, with calls snapping up a whopping 84% of the day’s take.

Among the most active contracts on Friday was the weekly Oct 28 series $95 call, which saw open interest swell to more than 10,000 contracts. TWX traders should expect similar activity in the weeks to come, though much of the new activity could be on the put side given the stock’s dip in premarket activity this morning.

As of this writing, Joseph Hargett did not hold a position in any of the aforementioned securities.

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Article printed from InvestorPlace Media, https://investorplace.com/2016/10/mondays-vital-data-microsoft-corporation-msft-bank-america-corp-bac-time-warner-inc-twx/.

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