U.S. stock futures are pointed sharply lower this morning, as Wall Street came back from the Martin Luther King Jr. holiday in a selling mood. Comments from President-elect Donald Trump on China and the U.S. dollar helped spur the selloff, as Trump told The Wall Street Journal that the dollar was “too strong” due to China manipulating the yuan.
Adding fuel to the fire, British Prime Minister Theresa May is said to be pushing for a “hard Brexit” from the EU.
Against this backdrop, futures on the Dow Jones Industrial Average have fallen 0.41%, S&P 500 futures have shed 0.51% and Nasdaq-100 futures are down 0.52%.
On the options front, Friday’s volume was brisk heading into the three-day weekend. Overall, roughly 15.4 million calls and 13.4 million puts crossed the tape on Friday. Over on the CBOE, the single-session equity put/call volume ratio whipsawed to 0.63 from Thursday’s one-week high of 0.68, while the 10-day moving average held steady in two-month high territory at 0.67.
Turning to Friday’s volume leaders, Facebook Inc (NASDAQ:FB) call volume received a pre-earnings boost from Raymond James, which upgraded the stock to “strong buy.” Elsewhere, T-Mobile US Inc (NASDAQ:TMUS) saw call volume ramp up amid the FCC’s spectrum auction, which has led to increased speculation on merger activity in the telecom sector. Finally, Tesla Motors Inc (NASDAQ:TSLA) was also call heavy after the company detailed its plans to charge for supercharging stations across the country.
Facebook Inc (FB)
Front-running the social media giant’s quarterly report, Raymond James lifted Facebook stock to “strong buy” from “outperform” on Friday.
According to a research note, social media ad spending was strong in the fourth quarter, with Raymond James stating that channel checks indicate an increase in ad spending of about 20% to 30%. The brokerage firm reasoned that Facebook should now easily hit ad growth estimates of 35%.
FB stock rallied 1.36% on the news, finally filling in November’s post-earnings gap lower. The combination of technical and fundamental strength pushed options traders toward FB call options in droves on Friday. Overall, Facebook saw volume reach over 962,000 contracts, with calls snapping up 70% of the day’s take.
Looking out to 3 Feb options, however, FB options bulls are still playing catchup. Currently, peak call open interest rests at the in-the-money $123 strike, totaling 9,800 contracts — well short of FB’s current perch north of $128. In the $128 region, there are roughly 3,400 contracts at each of the $129, $130 and $131 strikes in the 3 Feb. series, i.e., the one most affected by Facebook’s coming quarterly report on Feb. 1.
T-Mobile US Inc (TMUS)
TV broadcasters have once again lowered their asking price for prime wireless spectrum in the ongoing FCC auction which began in March. Broadcasters were originally asking $86 billion for the wireless spectrum, but have since lowered their price to just $10 billion, and potentially setting the stage for a failure of the auction if none of the major wireless carriers bite. T-Mobile certainly could use the spectrum, having outgrown most of its current bandwidth. However, a failure of the auction could lead to another round of merger and acquisition activity in the telecom sector.
Options traders ramped up speculation on TMUS stock on Friday following the news, as T-Mobile has long been seen as a prime acquisition candidate. Total volume on Friday rose to 367,000 contracts, with calls making up a whopping 99% of the day’s take.
Diving into the activity, however, reveals that about 180,000 of those contracts — more than half — were involved in one spread trade at the Jan. 2017 $50 and $55 strikes. According to Trade-Alert.com, blocks of 90,000 contracts traded on both the Jan 2017 $50 and $55 strikes for the respective bid prices of $2.84 and $7.55.
Without additional information it is impossible to tell exactly what is going on here, but it would appear to be the closure of a bull call spread ahead of expiration this Friday. If so, the trader netted a profit of $4.71, or $471 per pair of contracts, on the trade.
Tesla Motors Inc (TSLA)
On Friday, Tesla Motors detailed how it would be handling plans to begin charging for use of its supercharger network — plans for which were hinted at back in November. The news prompted Global Equities Research’s Trip Chowdhry to claim that by 2020, the supercharger network would add $2.6 billion in revenue directly into Tesla’s bottom line.
TSLA stock leapt 3.55% following the research note.
TSLA options traders also rallied behind the bullish note, sending nearly 350,000 contracts across the tape on Friday. Calls claimed an above average 63% of the day’s take. That said, options traders remain somewhat conservative on TSLA stock’s prospects.
Looking at Feb open interest, peak OI totals 5,600 contracts at the in-the-money $235 strike, with little in the way of additional OI north of this region. In other words, TSLA options traders are remaining in a holding pattern until more news is known on how supercharging charges will impact Tesla’s revenue.
As of this writing, Joseph Hargett did not hold a position in any of the aforementioned securities.
