U.S. stock futures are pointed lower this morning, as the Donald Trump/Santa Claus rally takes a breather ahead of a rush of economic data. Today’s docket includes a third estimate on U.S. third-quarter gross domestic product (GDP), weekly jobless claims, November durable-goods orders, and November personal income, consumer spending and core inflation. Looks like Dow 20,000 may have to wait a bit longer.
At last check, futures on the Dow Jones Industrial Average were up 0.02%, with S&P 500 futures off 0.01% and Nasdaq-100 futures rising by 0.03%.
On the options front, traders are beginning to head home for the holidays, as evidenced by the steep drop in option volume on Tuesday. Only about 12.5 million calls and 9.9 million puts crossed the tape yesterday. On the CBOE, we are seeing a bit of caution ahead of the break, with the single-session equity put/call volume ratio spiking to a two-month high of 0.77, which pushed the 10-day moving average to a three week high of 0.60.
Turning to Wednesday’s volume leaders, Twitter Inc (NYSE:TWTR) call volume spiked despite TWTR stock getting smacked with an extremely bearish research note from Global Equities Research. Meanwhile, Micron Technology, Inc. (NASDAQ:MU) attracted a wealth of call volume ahead of its first-quarter earnings report, and Advanced Micro Devices, Inc. (NASDAQ:AMD) was upgraded at Mizuho Securities.
Twitter Inc (TWTR)
Global Equities Research analyst Trip Chowdhry stopped just shy of calling TWTR stock doomed on Wednesday. Chowdhry laid into TWTR speculators over the past month, stating “Many investors were foolishly building (an) investment thesis based on complete stupidity.”
Ouch. Adding to the flood of bearish TWTR stock sentiment, Twitter continues to hemorrhage top talent, with Chief Technology Officer Adam Messinger and V.P. of Product Josh McFarland jumping ship yesterday.
But the negativity didn’t slow bullish TWTR options speculators, as the stock saw volume swell to 338,000 contracts, with calls snapping up 71% of the day’s take. In fact, TWTR call traders dominate the January 2017 series, with the put/call open interest ratio arriving at 0.45, indicating that calls more than double puts among short-term options.
Admittedly, taking LEAP options into account, much of this OI has been out there for a while, especially the more than 93,000 calls at the $35 strike. Yet, put traders have not stepped up to match OI anywhere near those levels.
Micron Technology, Inc. (MU)
Semiconductor concern Micron reported earnings below past Wall Street’s expectations last night. The company posted a first-quarter profit of 32 cents per share, versus the Street’s target of 28 cents per share. Revenue rose 18.5% to $3.97 billion, arriving just shy of the consensus for $3.98 billion.
But it was the rising DRAM and NAND sales volumes that really drove the point home for MU stockholders. On the quarter, DRAM sales jumped 18% while NAND soared 26%. Heading into the open, MU stock has already gained nearly 12% following the report.
This should be good news to all the MU call options traders that flooded the stock yesterday. Total volume came in at 338,000 contracts, a near-term high, with calls snapping up 68% of the day’s take.
If you managed to get in on the Jan 2017 $21/$22 bull call spread I wrote about earlier this month, you’re looking at a maximum profit if MU opens north of $22 this morning — so close that puppy out. If you’re looking to get in now … well, don’t chase the rally. Instead, collect a bit of premium by selling a short-term out-of-the-money $20 strike put — the weekly Dec. 30 $20 put sell looks attractive right now.
Advanced Micro Devices, Inc. (AMD)
While Nvidia Corporation (NASDAQ:NVDA) stole the show and most of the headlines yesterday, Mizuho Securities also upgraded AMD stock to “buy” from “neutral” at the same time setting a $13 price target. AMD stock responded by jumping more than 5% on Monday to hit a nine-year high. The shares are now staring down resistance in the $12 region, and with their current momentum, and a little help from Santa, this region could be breached before the start of 2017.
Options traders certainly think so, as they sent more than 275,000 contracts across the tape on Wednesday, with calls accounting for a whopping 84% of the day’s take. That said, there is still a fair amount of pessimism left to unwind for AMD. Specifically, the January 2017 put/call OI ratio rests at 0.89, meaning puts are still in demand heading into the new year.
Look for this sentiment to shift sharply if AMD breaks above $12, and for the shares to see additional upside as the bears finally capitulate to the trend.
As of this writing, Joseph Hargett did not hold a position in any of the aforementioned securities.
