U.S. stock futures are trading largely flat this morning, as Wall Street weighs its options after yesterday’s rally. Even higher oil prices have failed to drive futures higher this morning, as crude is up 1.4% to trade north of $51 per barrel.
While earnings season is in full swing, economic data on September housing starts and building permits and the Federal Reserve’s Beige Book will likely have an impact later today.
Against this backdrop, futures on the Dow Jones Industrial Average have slipped 0.08%, while S&P 500 futures are up0.07% and Nasdaq-100 futures are down 0.06%.
Tuesday’s options activity came in below average, with about 12.7 million calls and 11.1 million puts changing hands on the session. Over on the CBOE, the single-session equity put/call volume ratio rose to 0.69, while the 10-day moving average ticked lower to 0.64.
Driving Tuesday’s activity, Netflix, Inc. (NASDAQ:NFLX) posted blowout third-quarter earnings results and guided higher, while Intel Corporation (NASDAQ:INTC) beat expectations but guided lower. Meanwhile, Apple Inc.’s (NASDAQ:AAPL) quarterly report arrives early next week, giving options traders more time to position ahead of the event.
Netflix, Inc. (NFLX)
Online streaming giant Netflix blew past Wall Street’s earnings estimates yesterday, posting a profit of 12 cents per share on revenue of $2.29 billion. The consensus was expecting a profit of 6 cents per share on $2.28 billion in revenue. Netflix also said it added 3.57 million new subscribers and guided higher for the fourth quarter.
All in all, it was a rather impressive quarter, and yet, options traders still seemed reluctant to chase NFLX’s rally. The shares finished the session with a 19% gain, but calls still only accounted for about 52% of the day’s total volume of 982,000 contracts.
The two most active call strikes were the Oct $110 and $120 strike, which sport open interest of 28,000 and 13,000 contracts, respectively. By comparison, peak put OI for the series totals 15,000 contracts at the deep-out-of-the-money $90 strike. The takeaway here is that options traders still don’t appear to have bought into NFLX’s rally, which could leave the shares weak over the short-term, but provide more fuel for such surprise moves down the road.
Intel Corporation (INTC)
The situation was almost completely different for semiconductor bellwether Intel. The company said it earned 80 cents per share on revenue of $15.78 billion, versus expectations for 72 cents per share on revenue of $15.56 billion. All good, right? Except Intel said it expects fourth-quarter revenue of $15.7 billion — with no earnings per share guidance offered — while analysts are expecting earnings of 76 cents per share on $15.85 billion in revenue.
INTC is down nearly 5% premarket on the news, leaving options traders that piled into calls ahead of the event in the lurch. Overall, more than 687,000 contracts traded on INTC, with calls snapping up 69% of the day’s take.
If the stock’s premarket sell-off carries over into the open, INTC would open below peak put OI of 28,000 contracts and peak call OI of 64,000 contracts — both of which reside at $36. What’s more, $36 is also home to INTC’s 50-day moving average. A breach of this trendline could mark the beginning of a longer-term downtrend for INTC stock.
Apple Inc. (AAPL)
Apple will slip into the earnings confessional after the close of trading on Tuesday next week. Analysts are expecting a profit of $1.65 per share, down from $1.96 per share in the same quarter last year. However, EarningsWhispers.com sets the bar considerably higher at $1.75 per share — a sign that recent iPhone 7 expectations have crept onto the earnings scene. Revenue is seen slipping 9% to $46.86 billion.
Option volume on AAPL ramped up on Tuesday, and traders should expect this trend to hold true through next week. Overall, 788,000 contracts changed hands on AAPL yesterday, with calls snapping up 68% of the day’s take.
Currently, speculative traders are focused on the $120 strike, where more than 13,000 contracts are open in the weekly October 28 series. Peak call OI for the series, however, totals 15,000 contracts at the in-the-money $115 strike, hinting at some conservative leanings ahead of next week’s event.
As of this writing, Joseph Hargett did not hold a position in any of the aforementioned securities.
