U.S. stock futures are headed lower this morning, as Wall Street looks to catch its breath. The Donald Trump rally has led to a near-irrational exuberance for the past week, with the Dow Jones Industrial Average rallying for seven straight sessions and posting four consecutive record highs. This rising optimism toward economic growth will be tested this morning with the arrival of October’s producer price index and industrial production report, as well as November’s housing market index.
At last check, Dow futures were off 0.32%, S&P 500 futures had lost 0.38% and Nasdaq-100 futures were down 0.42%.
Over in the options pits, calls remained on top and volume remained strong as roughly 19 million calls and 14.2 million puts crossed the tape on Tuesday. Meanwhile, calls solidified control on the CBOE, as the single-session equity put/call volume ratio plunged to a three-month low of 0.51, pushing the 10-day moving average to a three-week low of 0.66.
Among Tuesday’s volume leaders, Facebook Inc (NASDAQ:FB) saw pressure over fake news proliferation increase after the story gained traction in The Wall Street Journal. Elsewhere, a 5.8% spike in crude oil prices helped bolster confidence in Chevron Corporation (NYSE:CVX) and an upgrade at Morgan Stanley send United States Steel Corporation (NYSE:X) shares soaring.
Facebook Inc (FB)
Facebook has an image problem among its core user base. The proliferation of fake and misleading news stories on Facebook.com has undermined the company’s decision earlier this year to fire is content team and rely on software algorithms for news selection. Many are speculating that the rise of fake news on Facebook had an impact on the U.S. presidential election.
What’s more, the situation is getting worse, after The Wall Street Journal highlighted the story yesterday.
While Facebook struggles to deal with the rising negative sentiment, FB stock has breached key support at $120 and its 200-day moving average. What’s more, bearish sentiment is spreading to the options pits, a once stalwart bullish holdout for the stock.
In Tuesday’s trading, FB saw nearly 500,000 contracts change hands, with calls only capturing 59% of the day’s take — down sharply from an average of 64%-65% of daily volume. The situation has affected FB stock’s November/December put/call open interest ratio as well, with the reading rising from sub 0.60 range to its current perch at 0.74 as puts are added at a faster rate than calls among near-term options.
Chevron Corporation (CVX)
Crude oil prices surged roughly 5.8% yesterday, bolstered by renewed efforts by OPEC members to reach a plan to curtail production. The energy sector as a whole rallied on the news, with the Energy Select Sector SPDR (ETF) (NYSEARCA:XLE) gaining nearly 3%. Options traders, meanwhile, focused on oil darling Chevron, chasing CVX’s 2.24% rally.
However, Chevron options traders were likely more focused on capturing the company’s $1.08 per share dividend, which is payable on Dec. 12 to shareholders of record as of the close on Nov. 15. With CVX trading ex-dividend today, options volume surged on the stock to more than 536,000 contracts on Tuesday, with calls, unsurprisingly, snapping up 87% of the day’s take.
United States Steel Corporation (X)
Morgan Stanley’s take on the U.S. Steel can be summed up in one quote: “For the first time in a decade, we see a credible long-term investment case for steel equities.” Citing Trump’s plans to significantly boost infrastructure spending, the brokerage firm upgraded X stock to “overweight” from “equal weight” and more than doubled its price target to $48 from $19.
Options traders responded with a flood of activity, sending more than 204,000 contracts across the tape for X stock. However, bullish speculation was kept to a minimum, despite Morgan Stanley’s hype, as puts made up 60% of the day’s action.
Overall, the November/December put/call open interest ratio for X stock has a bit more bullish lean, arriving at 0.74, down from its recent stint in the 0.80-0.90 range for the prior three months.
As of this writing, Joseph Hargett did not hold a position in any of the aforementioned securities.
