U.S. stock futures are mixed heading into the open, as Wall Street digests record highs for stocks across the board. Economic data is also creating some headwinds, as analysts await the first release of the fourth-quarter GDP, which is expected to have slowed to growth of 2.2% from 3.5% in the third quarter. Also on tap are December durable goods orders and January consumer sentiment.
Against this backdrop, futures on the Dow Jones Industrial Average have edged 0.12% lower, while S&P 500 futures have fallen 0.01% and Nasdaq-100 futures have rallied 0.22%.
On the options front, volume has grown quite volatile this week, with activity plunging from Wednesday’s break-neck pace to only about 15.2 million calls and 12.9 million puts crossing the tape on Thursday. Over on the CBOE, the single-session equity put/call volume ratio nudged higher to 0.65 and the 10-day moving average held at 0.65 for the seventh straight session.
Turning to Thursday’s volume leaders, Microsoft Corporation (NASDAQ:MSFT) saw an influx of call options activity ahead of last night’s stronger-than-expected second-quarter earnings report. Elsewhere, Starbucks Corporation (NASDAQ:SBUX) options activity was mixed prior to the company reporting disappointing quarterly results. Finally, Verizon Communications Inc. (NYSE:VZ) saw speculation explode after reports that the company was in talks to merge with Charter Communications Inc.
Microsoft Corporation (MSFT)
Driven by strength in its cloud services unit, Microsoft reported that second-quarter earnings rose 9% to 83 cents per share, on sales of $26.07 billion. Both figures topped the consensus estimates of 79 cents per share and revenue of $25.30 billion.
“We see strong demand for our cloud-based services and are executing well on our long-term growth strategy,” Microsoft Chief Financial Officer Amy Hood said in a statement.
Options traders were already in a bullish mood heading into the event, with calls accounting for 66% of the nearly 800,000 contracts traded on MSFT stock. If MSFT’s 1.7% premarket gain carries over into the open, the shares are poised to close out the week north of heavy 27 Jan. call open interest (roughly 13,000 contracts) at the $65 strike.
What’s more, there are more than 45,000 call contracts at this strike in the Feb. series, with little in the way of additional OI above $65, leaving the door open for additional gains if MSFT stock can close out strong today.
Starbucks Corporation (SBUX)
Starbucks’ earnings were lacking that caffeinated buzz last night. The coffee king’s quarterly results of 52 cents per share were in-line with expectations, but revenue of $5.73 billion missed the consensus estimate of $5.85 billion in sales.
In fact, sales growth was down across the board, with global same-store sales up only 3% versus expectations for 3.8% growth, and U.S. comparable-store sales rising 3% versus expectations for a 4% gain.
Options traders seemed to have an inkling that things were amiss at Starbucks. Yesterday’s volume came in at 397,000 contracts, with puts claiming 51% of the day’s take. SBUX is off more than 4% near $56 per share in premarket action, placing the stock below peak 27 Jan. put OI of 18,000 contracts at the $56.50 strike.
Looking out to Feb options, roughly 9,100 puts reside at the $55 strike, creating a potential area of options related support for SBUX stock. Given that the $54 region is home to long-term support/resistance, however, follow-through selling could push SBUX down for a retest of this area before the shares recover.
Verizon Communications Inc. (VZ)
Verizon is starving for growth. You only need to look at this week’s quarterly earnings report for evidence of the company’s troubles. And with its leading competitor AT&T Inc. (NYSE:T) looking to finalize its Time Warner Inc. (NYSE:TWX) acquisition, Verizon needs to do something to spice things up.
And Verizon appears to be doing just that, as the company is reportedly in talks for a merger deal with privately held Charter Communications Inc. That said, no official offer has been made, contrary to earlier reports.
The initial reaction to the news was mixed in the options pits. Volume rose to 327,000 contracts, with calls only scraping together 51% of the day’s take. Many VZ options traders are likely still reeling from the stock’s 4.4% post-earnings plunge, so enthusiasm surrounding a potential merger with not details is understandably muted.
That said, calls are gaining the upper hand in the Feb. series. Currently, the put/call OI ratio for Feb. rests at 0.92, with the reading falling from its pre-earnings perch north of 1.00 this week. Any final deals or details on a Charter tie-up should prompt a surge in call speculation, if not arbitrage plays by VZ options traders.
As of this writing, Joseph Hargett did not hold a position in any of the aforementioned securities.
