Despite a looming Federal Reserve interest rate hike, U.S. stock futures are headed higher once again this morning. In fact, the Dow Jones Industrial Average is on pace to bank its seventh-consecutive record-high close, as the blue chip barometer inches closer to the 20,000 mark. As for the Fed, the Federal Open Market Committee (FOMC) kicks off its two-day policy meeting today, with a rate announcement expected at 2 p.m. tomorrow afternoon.
Heading into the open, futures on the Dow are up 0.39%, with S&P 500 futures rising 0.36% and and Nasdaq-100 futures higher by 0.42%.
On the options front, volume dropped precipitously from Friday’s above-average pace. About 14.9 million calls and 11.8 million puts changed hands during Monday’s session. On the CBOE, the single-session equity put/call volume ratio bounced to 0.57, while the 10-day moving average held at a four-month low of 0.58 for the third consecutive session.
Among Monday’s volume leaders, AT&T Inc. (NYSE:T) saw a spike in call volume after analysts at Robert W. Baird upgraded the shares due to expectations from the incoming Donald Trump administration. Elsewhere, Facebook Inc (NASDAQ:FB) slipped on news the company had once again messed up its advertising metrics, while Exxon Mobil Corporation (NYSE:XOM) broke out on news of an agreement by OPEC and non-OPEC countries to cap oil output.
AT&T Inc. (T)
While most of the market has rallied since the Nov. 8 election due to the so-called “Trump bump,” AT&T stock traders can literally say that yesterday’s rally was because of Trump. Or rather, Robert W. Baird upgraded T stock to “outperform” from “neutral” because of Trump.
In a research note on Monday, Baird said “We are positive on the recent media moves, and believe the Trump focus on deregulation and lower tax rates could provide a multiplier effect for T’s businesses.” The brokerage set a price target of $44 per share for T stock.
T stock options traders reacted to the upgrade with a flood of call options, chasing AT&T’s nearly 2% rally on the day. Total volume came in at more than 355,000 contracts for T, setting a near-term high for the stock, while calls accounted for 70% of the day’s take.
Looking at data from Trade-Alert.com, T call spreads were quite popular on Monday. Most notable were a December $38/June $40 calendar spread totaling more than 29,000 contracts and a January $40/$42 bull call spread also comprising about 29,000 contracts with an ask price of 31 cents, or $31 per pair of contracts.
While the calendar spread looks to be tied to collecting premium based on an expected decline in implieds, the call spread is certainly a bet that T stock will rally north of $42 by the time January options expire.
Facebook Inc (FB)
FB stock dipped 1.6% on Monday, leading typically bullish options traders to back off the shares for the day. Driving the decline was news that Facebook had once again miscalculated key advertising metrics. Specifically, the company noted two new discrepancies, one where it had miscounted user reactions during live streams and one where it might have counted likes and shares for posts incorrectly when Facebook users searched via a URL in the Facebook search bar. The company said it would begin fixing these issues in in mid-December.
FB options volume remained robust during Monday’s session, with more than 332,000 contracts changing hands. And while it may not seem like a bearish indicator, calls only made up 60% of the day’s take — down from an average daily percentage in the 64%-65% range.
Looking ahead to January, FB stock’s put/call open interest ratio has crept higher to a perch at 0.75, as puts are slowly being added at a faster pace than calls heading into the new year. This situation could change, however, if FB stock can make a meaningful move back above the psychologically important $120 area.
Exxon Mobil Corporation (XOM)
XOM stockholders were greeted with a pair of positive reports on Monday. First, President-elect Donald Trump has selected Exxon CEO Rex Tillerson as his pick for Secretary of State. Second, OPEC and non-OPEC countries agreed to production cuts. Specifically, Russia and Mexico are cutting output by 558,000 barrels per day, adding to OPEC’s cut of 1.2 million barrels per day the cartel agreed upon earlier this month. The moves could send oil prices north of $60 per barrel, according to analysts.
XOM stock is up nearly 4% since rumors started swirling about Tillerson’s nomination, driving an influx of call option activity for the stock.
On Monday, volume came in just shy of 230,000 contracts, with calls snapping up 63% of the day’s take. Looking out to January, XOM options traders remain somewhat cautious, but the sentiment backdrop is improving. Specifically, XOM’s January put/call OI ratio has steadily declined over the past week to 0.88 from a reading in the mid-to-low 0.90s and options traders turn to XOM call options in a bid to bet on higher prices.
As of this writing, Joseph Hargett did not hold a position in any of the aforementioned securities.
