U.S. stock futures are once again in a holding pattern heading into the open, as Wall Street braces for another barrage of corporate earnings. Additionally, traders are also taking a wait-and-see approach to President Donald Trump’s first 100 days in office, as protectionist policies are beginning to take shape. Finally, today’s economic data includes the January Markit manufacturing report and December data on existing-home sales.
Heading into the open, futures on the Dow Jones Industrial Average are up 0.02%, while S&P 500 futures are off 0.01% and Nasdaq-100 futures have edged 0.05% higher.
On the options front, Monday’s volume fell precipitously from Friday’s expiration driven free-for-all. On the day, only about 14.8 million calls and 13.4 million puts crossed the tape. Over on the CBOE, the single-session equity put/call volume ratio hit a one-month high of 0.72, while the 10-day moving average continued to hold at 0.65.
Turning to Monday’s volume leaders, Alibaba Group Holding Ltd (NYSE:BABA) attracted a flood of call options ahead of this morning’s third-quarter report, which saw revenue spike 54% year-over-year. Meanwhile, Qualcomm, Inc. (NASDAQ:QCOM) was hit with an Apple Inc. (NASDAQ:AAPL) lawsuit and an analyst downgrade. Finally, Intel Corporation (NASDAQ:INTC) also saw a spike in call volume ahead of Thursday’s quarterly earnings report.
Alibaba Group Holding Ltd (BABA)
Thanks to a surge in sales on Singles Day — the largest Chinese shopping day of the year — Alibaba’s third-quarter results blew past Wall Street’s expectations.
For the quarter Alibaba said it earned $1.30 per share on revenue of $7.7 billion, up 55% year-over-year. What’s more, mobile monthly active users rose 25% to 493 million, bolstering mobile revenue to a 73% year-over-year rise.
In premarket trading, BABA shares were last seen up nearly 5% at $103.30.
Heading into the report, BABA options traders were betting on a bull run. Total volume swelled to over 572,000 contracts, with calls snapping up 68% of the day’s take. If the shares’ premarket gains carry over into the open, Alibaba will eclipse peak 27 Jan open interest of nearly 17,000 contracts at the $100 call strike.
What’s more, there is little in the way of additional call OI north of this strike, by comparison, creating less potential friction for follow-through buying heading into February. The next potential technical hurdle for BABA lies at $105.
Qualcomm, Inc. (QCOM)
QCOM stock was hit with a double-whammy yesterday after Apple filed a lawsuit and Nomura downgraded the stock from “buy” to “neutral.” Apple is seeking $1 billion for unfair royalty charges from Qualcomm, while Nomura issued the downgrade on licensing concerns regarding the company’s acquisition of NXP Semiconductors. Qualcomm derives 80% of its revenue from licensing.
QCOM stock is up roughly 1.2% in pre-market activity, but plunged nearly 13% in Monday’s session.
Options traders were shaken by the pair of reports, with puts making up nearly half of the 482,000 contracts traded on QCOM yesterday. After the plunge, Qualcomm dipped below peak 27 Jan call and put OI at the $55 strike, but the shares are looking to reclaim that perch this morning. Looking ahead of Feb. options reveals a wealth of deep out-of-the-money call OI north of $70.
In other words, QCOM options traders may take a while to readjust their expectations in light of Monday’s news.
Intel Corporation (INTC)
INTC stock is fresh off a nearly 9% run from its December lows, but the shares have begun to stall out in the $37 region. But that hasn’t stopped INTC options traders from speculating on a resumption of that run ahead of Thursday’s earnings.
For the record, Intel is expected to post a profit of 75 cents per share on revenue of $15.74 billion. The whisper number, according to EarningsWhipsers.com, rests at 78 cents per share.
Volume came in at roughly 222,000 contracts for INTC on Monday, as calls made up 68% of the day’s take. Looking at expectations for Thursday’s report, options traders have their sights set on $37. In fact, the 27 Jan $36.50/$37 bull call spread appears to be quite popular, with 7,300 contracts at the lower strike and more than 7,800 contract at the higher strike.
This spread can be had for 28 cents, or $28 per pair of contracts, right now, though the maximum return rests at a paltry 22 cents, or $22 per pair of contracts.
As of this writing, Joseph Hargett did not hold a position in any of the aforementioned securities.
