U.S. stock futures were up sharply for a good portion of this morning following positive economic data out of China. Specifically, China’s manufacturing purchasing managers index (PMI) for October rose to a two-year high of 51.2, bolstering confidence in the global economy. Manufacturing is also in focus stateside, as October PMI and ISM data are due out early this morning.
Heading into the open, futures on the Dow Jones Industrial Average have rallied 0.13%, while S&P 500 futures have gained 0.19% and Nasdaq-100 futures are up 0.13%.
Monday’s options activity was anemic compared to Friday’s volume. Both calls and puts saw less action, with only about 11.9 and 11.8 million of each crossing the tape, respectively, during yesterday’s trading. Over on the CBOE, the single-session equity put/call volume ratio remained elevated, but dipped to a reading of 0.75. The 10-day moving average, meanwhile, hit a one-week high of 0.65.
Earnings were the big driver for Monday’s option volume, as traders made last minute preparations ahead of Pfizer Inc.’s (NYSE:PFE) quarterly report, which hit earlier this morning. Also drawing heavy earnings-related options activity were Alibaba Group Holding Ltd (NYSE:BABA) and Facebook Inc (NASDAQ:FB), which are slated to release their quarterly reports ahead of the open tomorrow morning and after the close of trading tomorrow, respectively.
Facebook Inc (FB)
We are now just two trading sessions away from news on whether Facebook will hit the lofty 70% jump in earnings Wall Street is expecting. Analysts have their sights set on earnings of 97 cents per share and revenue of $6.9 billion, with about 1.7 billion monthly active users.
Facebook has beat Wall Street’s targets in all but one quarter since going public, and EarningsWhispers.com has set a whisper number of $1.03 per share. Traders should expect Oculus sales to be a sore spot, and overstated video ad impressions could also be a point of contention.
Judging by Monday’s activity, speculation from options traders is not overly enthusiastic, yet. Total volume came in at 334,000 contracts, with calls accounting for 63% of the day’s take, down from an average daily percentage in the 65-66 range. What’s more, FB’s total November put/call open interest ratio has risen recently to a perch at 0.89, up from the reading’s usual range near 0.70. Judging from weekly Nov 4 implieds, the options pits are pricing in a potential post-earnings move of about 5.5% for FB stock.
Alibaba Group Holding Ltd (BABA)
Chinese internet giant Alibaba will step into the earnings limelight bright and early tomorrow morning, with analysts looking for a profit of 70 cents per share on revenue of $5.13 billion. Both figures are up sharply year-over-year.
Cloud services could be a high point for Alibaba’s report, with revenue soaring 156% year-over-year last quarter, while global efforts may be downplayed as the company has stated that it plans to focus on Asia for the time being.
Options traders are leaning bullish heading into tomorrow morning’s report. Total volume on Monday rose to 302,000 contracts, with calls making up an above-average 61% of the day’s take. Most of this call activity has been focused in the weekly Nov 4 series, where the put/call open interest ratio has pulled back to a perch at 0.71. However, the total November ratio sits at a bearish reading of 1.21.
In other words, while options traders are expecting an earnings pop, the potential rally is seen as short lived.
Pfizer Inc. (PFE)
Call activity was extremely heavy on drug czar Pfizer heading into this morning’s quarterly report. Total volume vaulted to a near-term high of 249,000 contracts, with calls accounting for 59% of the day’s take.
Data from Trade-Alert.com reveals that a large chunk of yesterday’s call activity took place at the December $34 strike, where a block of roughly 28,000 contracts traded at the ask price of 18 cents per share, or $18 per contract. That’s roughly a half-a-million dollar bet on a PFE stock rally.
Unfortunately for PFE bulls, the shares are down nearly 1% in premarket trading after Pfizer whiffed on Wall Street’s earnings target. Specifically, Pfizer reported a profit of 61 cents per share on revenue of $13.045 billion, compared to the consensus estimate for 62 cents per share and revenue of $13.055 billion.
Guidance was also a bit on the weak side, with Pfizer targeting full-year earnings set between $2.38 and $2.48 per share on sales of $52 billion to $53 billion. Wall Street was looking for full-year revenue of $53.1 billion and earnings of $2.46.
As of this writing, Joseph Hargett did not hold a position in any of the aforementioned securities.
