U.S. stock futures are trading lower across the board this morning, as investors move to the sidelines ahead of tomorrow’s September nonfarms payroll report.
The key jobs data needs to walk a fine line for Wall Street, as a strong report would signal a Fed rate hike sooner than later, while a weak report would indicate a struggling economy. Elsewhere, Twitter Inc (NYSE:TWTR) is down sharply following a report that the list of serious bidders for the company has narrowed sharply.
Heading into the open, futures on the Dow Jones Industrial Average have fallen 0.12%, with S&P 500 futures down 0.13% and Nasdaq-100 futures off 0.12%.
Wednesday’s options activity edged slightly higher heading into Friday’s jobs data, though attention to calls belied Wall Street’s current protectionist stance. Overall, 15.7 million calls and 12.4 million puts changing hands on the session. On the CBOE, the single-session equity put/call volume ratio maintained is call bias despite rising slightly to 0.58. The 10-day moving average fell to one-month low territory at 0.63.
Providing the drivers for Wednesday’s options volume, Twitter buyout speculation ramped up yesterday following a report that Salesforce.com, Inc. (NYSE:CRM) has emerged as the frontrunner, with Apple, Inc. (NASDAQ:AAPL), Alphabet Inc (NASDAQ:GOOG, NASDAQ:GOOGL) and Walt Disney Co (NYSE:DIS) reportedly dropping out of the race. And while the date to get in on Procter & Gamble Co’s (NYSE:PG) beauty products spinoff has passed, options traders have turned their attention toward unwinding those positions and preparing for the company’s ex-dividend date.
Twitter Inc (TWTR)
According to a report in Recode, Twitter now has only one major bidder lined up in the company’s current campaign to sell itself — Salesforce.com. News that Salesforce.com emerged as the frontrunner pushed TWTR stock nearly 6% higher on Wednesday, but aftermarket reports that the rest of the big-name bidders are likely to move on has the shares down more than 15.5% in premarket trading. Twitter has said that it will conclude buyout negotiations by October 27.
As expected, heavy speculation continued in the options pits for TWTR on Wednesday. Nearly 1.5 million contracts changed hands on the social media firm, with calls acquiring the lion’s share at 72% of the day’s take. However, call traders may be in for a bit of trouble because of TWTR’s post-close swoon. As a result, some 27,000 October 21 series $24 strike calls are now trading out of the money, with about 25,000 $20 strike calls at risk if TWTR’s premarket losses carry over into the open.
If Salesforce.com makes an official bid for Twitter, these fortunes could quickly turn around, making today’s plunge a potential opportunity to go long on TWTR.
Salesforce.com, Inc. (CRM)
On the other hand, traders may want to look at going short on CRM stock. News that the company has emerged as the leading contender to buy TWTR sent Salesforce.com stock reeling on Wednesday. In fact, analysts at Mizuho said that the combination of the two companies could wipe out 20% to 25% of the combined company’s value. Unhappy CRM stock traders sent the shares down nearly 6% in response.
CRM options traders, meanwhile, set their sights on calls on Wednesday. Nearly 520,000 contracts traded on CRM, setting a near-term high for the shares, while calls accounted for 66% of the day’s total volume. Still, CRM’s weekly October 7 series options are scattered across the board, showing no real direction for the equity. Peak call OI for the series totals about 5,700 contracts at $70, while nearly 5,300 put contracts are open at $65.
A quick check of premarket trading reveals that those weekly $70 strike calls are now in the money, with CRM up about 3.5% heading into the open.
Procter & Gamble Co (PG)
If you were hoping to get in on the P&G beauty products spinoff … you’re way too late to the game. In fact, options traders appear to be already in the process of closing out their positions on PG, resulting in a wave of unusual deep-out-of-the-money option activity on Procter & Gamble stock.
That said, with Procter & Gamble’s ex-dividend date just over the horizon (last year’s ex-div date was October 21), we can expect to see more out-of-the-money call activity crop up in the next week or two. PG has raised its dividend every year since 1957, with the yield currently resting around 3%.
As for Wednesday’s PG options activity, the stock saw more than 788,000 contracts cross the tape yesterday. The activity was split nearly evenly between puts and calls, which should be unsurprising given capture spreads initiated ahead of the spinoff.
A look at activity on Trade-Alert.com sheds some light on this activity, with several large blocks of October 14 series $120 calls and puts crossing the tape. Most notably is a pair of $120 put and call blocks totaling 56,000 contracts where the calls crossed at the ask and the puts crossed at the bid.
As of this writing, Joseph Hargett did not hold a position in any of the aforementioned securities.
