U.S. stock futures are mixed this morning, as last week’s earnings and jobs euphoria has failed to carry over into premarket action this morning. Furthermore, Wall Street is wary ahead of key economic data from the White House, as President Trump is s required to submit a preliminary budget proposal to Congress on the first Monday of February. Investors are waiting to see just how Trump’s campaign promises for massive infrastructure spending and tax cuts will take shape.
Against this backdrop, futures on the Dow Jones Industrial Average are down 0.21%, while S&P 500 futures are off 0.23% and the Nasdaq-100 futures are down 0.22%.
On the options front, 3 Feb. options expiration drove heavy volume on Friday, as a wealth of earnings speculation finally came to a head. On the day, some 18.6 million calls and 14.7 million puts changed hands. Over on the CBOE, the single-session equity put/call volume ratio ticked higher to 0.68 while the 10-day moving average held at a three-month high of 0.69.
Turning to Friday’s volume leaders, Bank of America Corp (NYSE:BAC) attracted a surge in call activity ahead of President Donald Trump’s executive order aimed at rolling back financial regulations — setting the stage for the repeal of the Dodd-Frank Act. Elsewhere, Apple Inc. (NASDAQ:AAPL) calls were also wildly popular after new broke that the company would begin assembling iPhones in India by the end of April. Finally, Visa Inc (NYSE:V) jumped more than 4.5% after posting better-than-expected quarterly earnings.
Bank of America Corp (BAC)
Months of speculation came to an end on Friday, when President Trump took steps to roll back regulations on the financial industry — setting the stage for banks like Bank of America to begin unrestricted share buybacks and dividend increases. What’s more, financial industry analysts believe that if regulation rollbacks are on the table for banks, then corporate tax cuts can’t be far behind, as they were also among Trump’s campaign promises.
BAC stock has been itching for such news for weeks now, with investors banking on deregulation and the possibility of increased dividends given BofA’s strong performance in 2016. As a result, BAC options traders flooded the stock with calls on Friday, with these typically bullish bets making up 77% of the 1.3 million contracts traded.
Taking a broader look at short-term BAC speculation, the February/March put/call open interest ratio has plunged in recent weeks to a perch at 0.50, with calls doubling puts among contracts set to expire within the next two months. Currently, the most popular strike is the March $25 call, where more than 174,000 contracts reside. This strike rests about 7.3% out of the money and last traded at an ask price of 20 cents, or $20 per contract.
Apple Inc. (AAPL)
According to news on Friday, Apple has finally broken through into India’s massive mobile market. Apple will start making iPhones in India by the end of April, with Taiwan’s Wistron Corp. assembling the phones in Bangalore, said Priyank Kharge, the state’s information technology minister. Apple had requested a contentious 15-year tax holiday to import components and equipment, but ministry officials refused to comment on any incentives in the deal.
Call option volume on AAPL stock surged to well above normal levels following the news. Overall, some 1.03 million contracts traded on Apple, with calls gobbling up 71% of the day’s take.
That said, there is still plenty of room for additional call activity on AAPL, with the stock’s February/March put/call OI ratio arriving at 0.85, with the March $125 arriving as the most popular calls strike with more than 81,000 calls in residence. This reading has begun to drift lower during the past week, and Friday’s India news should help spur additional call activity this week.
Visa Inc (V)
Visa is “everywhere investors should want to be,” Cowen and Company told investors after the former’s strong quarterly earnings report. After the close on Thursday, Visa posted first-quarter earnings of 86 cents a share on revenue of $4.5 billion, easily topping estimates for 78 cents per share on sales of $4.3 billion. Visa also lifted its 2017 earnings outlook.
Following the report, V stock jumped roughly 4.6% to trade at a fresh all-time high just shy of $86 per share. Options traders signaled they expected additional gains from V stock, as volume rose to 223,000 contracts with calls snapping up 77% of the day’s take. Calls have begun to add up for V stock, with the February/March put/call OI ratio falling to a reading of 0.66 on Friday.
That said, there is some trepidation in the March series, where peak call OI of 13,000 contracts rests at the in-the-money $80 strike. Look for V options traders to roll these calls higher if the stock can maintain Friday’s momentum.
As of this writing, Joseph Hargett did not hold a position in any of the aforementioned securities.
