U.S. stock futures are headed higher this morning, as the Dow Jones Industrial Average looks to bank its 10th-consecutive winning session. Yesterday’s positive finish marked the longest streak of all-time-high closes for the Dow since 1987. Oil prices are helping to boost sentiment this morning, with crude oil up 1.5% $54.40 per barrel after the American Petroleum Institute showed an 884,000-barrel decline in U.S. crude supplies last week.
Heading into the open, futures on the Dow Jones Industrial Average have added 0.1%, with S&P 500 futures up 0.1% and Nasdaq-100 futures edging 0.08% higher.
On the options front, volume was anemic on Wednesday, with only about 13.8 million calls and 12.3 million puts changing hands on the session. Over on the CBOE, the single-session equity put/call volume ratio came in at 0.60, while the 10-day moving average tagged its third-consecutive two-month low, also at 0.6.
Turning to Wednesday’s volume leaders, Bank of America Corp (NYSE:BAC) continued to see heavy call volume after news that BAC stock is a top holding among the biggest hedge funds. Elsewhere, Advanced Micro Devices, Inc. (NASDAQ:AMD) remains a hot options topic ahead of next week’s 2017 Game Developers Conference and the release of its latest CPU chipset.
Finally, Freeport-McMoRan Inc (NYSE:FCX) continues to tank after not reaching a deal with Indonesia for its Grasberg copper mine.
Bank of America Corp (BAC)
With the promise of higher interest rates and lax regulations under the Donald Trump administration, financials are hot — so hot that hedge funds are piling into the sector left and right. According to a FactSet report, “The top 50 hedge funds bought $3.5 billion worth of stock in the financials group during the fourth quarter,” with BofA making up $1.5 billion of those investments.
What’s more, BAC stock was also the second largest purchase overall for hedge funds in the fourth quarter.
BAC options traders gravitated heavily toward the stock in yesterday’s activity following the report, with 821,000 contracts changing hands. Furthermore, 75% of Wednesday’s activity was comprised of call options activity. Looking out to the March series, BAC options traders are betting big on a continued rally.
Currently, the put/call open interest ratio for the series comes in at 0.47, meaning that calls more than double puts in March. With hints that another rate hike could be in the offering from the Fed, these calls may be speculative bets on a positive outcome for BAC stock.
Advanced Micro Devices, Inc. (AMD)
It’s a rally that just won’t quit. Despite increased volatility, AMD stock continues to march higher on the prospects of a strong 2017 performance. Next week’s 2017 Game Developers Conference offers another potential up-leg for AMD stock, as the event is expected to coincide with the early March release of the company’s latest Ryzen CPU chipset — which is reportedly cheaper and just as powerful as Intel Corporation’s (NASDAQ:INTC) top-of-the-line i7 chips.
AMD options speculators are out in force ahead of the event, with Wednesday’s volume near 406,000 contracts. What’s more, calls made up an above average 72% of the day’s take, indicating continued bullish confidence from the speculative options crowd. That said, AMD has already eclipsed short-term options targets at $13.50 and $14, with both strikes representing peak call OI in the March series. The next upside target is the March $15 call strike, where 12,600 contracts reside. If Ryzen lives up to the pre-release performance and pricing hype, expect AMD stock to hit $15 in short order.
Freeport-McMoRan Inc (FCX)
Back on Feb. 13, I noted that with copper prices soaring Freeport-McMoRan stock could be on the verge of a significant rally, if only it could get a deal done with Indonesia on its Grasberg mine. That deal appears to have fallen through, however, and so has FCX stock. The shares have plunged more than 8.5% since Tuesday after Freeport and Indonesian officials failed to reach an agreement.
The news also prompted Deutsche Bank to downgrade FCX stock to “sell” from “hold” and cut its price target to $12 from $14.
Options traders appeared to hold a smidgen of hope for a rebound, however, as calls made up 52% of the more than 302,000 contracts traded on FCX stock yesterday. That said, opinions have soured over the past week, with the March put/call OI ratio rising from 0.53 to its current perch at 0.69.
In fact, recent call activity could be closures to limit losses, or even short sellers hedging new positions on FCX. With Grasberg out of commission, FCX stock could be in trouble for the time being.
As of this writing, Joseph Hargett did not hold a position in any of the aforementioned securities.
