U.S. stock futures are trading broadly lower as Wall Street seeks shelter amid a shakeup in Washington. President Donald Trump’s abrupt firing of FBI Director James Comey caught traders off guard, perpetuating the air of unpredictability from this administration. Additionally, with the move coming on the same day as the FBI’s grand jury subpoenas in its Russia investigation, more than a few traders are eyeing the situation skeptically and seeking out safe-haven investments.
Against this volatile political backdrop, futures on the Dow Jones Industrial Average have dropped 0.15%, while S&P 500 futures have fallen 0.06% and Nasdaq-100 futures are flat.
On the options front, volume vaulted back above average on Tuesday. Overall, roughly 16.3 million calls and 12.2 million puts changed hands yesterday. Over on the CBOE, the single-session equity put/call volume ratio edged higher to 0.63, though the 10-day moving average held firm at 0.66.
Driving Tuesday’s options activity, Nvidia Corporation (NASDAQ:NVDA) released its first-quarter earnings report after the close last night, leaving cautious options traders in the lurch with the shares up nearly 13% in premarket trading this morning. Activity was also mixed on Walt Disney Co (NYSE:DIS) ahead of earnings, as traders fretted over additional losses from the Mouse’s ESPN unit. Finally, Valeant Pharmaceuticals Intl Inc (NYSE:VRX) pulled in a flood of call activity after the shares surged 24% on a blowout quarterly report.
Nvidia Corporation (NVDA)
It seems I was a bit too cautious in my treatment of Nvidia stock ahead of last night’s quarterly report. The semiconductor company posted impressive first-quarter earnings of 85 cents per share on revenue of $1.94 billion. Wall Street had been expecting earnings of just 67 cents per share and revenue of $1.91 billion. A closer look reveals that GPU sales rose 45% year-over-year, datacenter sales surged 186% and automotive channel sales grew 24%. Nvidia also guided above the consensus for second quarter results.
With misses from Intel Corporation (NASDAQ:INTC) and Advanced Micro Devices, Inc. (NASDAQ:AMD) already in the books, NVDA options traders were understandably cautious ahead of last night’s report. Volume on Tuesday rose to a respectable 515,000 contracts, but calls only cobbled together 55% of the day’s take. NVDA is set to open just shy of $115 this morning, putting the stock above all but the most bullish 12 May options strikes — the biggest being 11,200 calls at the $120 strike.
Walt Disney Co (DIS)
Walt Disney has a problem. The company posted relatively solid second quarter earnings after the close last night, with earnings coming in at $1.50 per share, five cents better than expectations for $1.45 per share. However, revenue of $13.33 billion fell short of Wall Street’s target of $13.48 billion. While CEO Bob Iger touted strong park and resort performance, as well as “great branded content,” ESPN remains a millstone around the Mouse’s neck.
Heading into the report, options traders telegraphed an air of caution, with calls only making up 54% of the more than 304,000 contracts traded on DIS stock. But while short-term traders are less than enthusiastic, back-month June options are anticipating a rebound from today’s losses. In fact, the June put/call open interest ratio currently rests at 0.42, with calls more than doubling puts among options set to expire within the next two months. That could be a tall order, however, with DIS set to open below resistance at $110 this morning.
Valeant Pharmaceuticals Intl Inc (VRX)
Low expectations can be a significant driver for a stock. Take Valeant Pharmaceuticals, for example. The company said it swung to a profit of $1.79 per share from a loss of $1.08 per share last year, blowing past Wall Street’s target of 87 cents per share. Yet revenue fell to $2.11 billion from $2.37 billion, missing expectations for $2.18 billion. What’s more, Valeant said that lower sales volumes and a loss of exclusivity for a number of products is creating a “challenging” market environment.
In other words, barring the earnings per share beat, it was more of the same from Valeant. And yet the stock surged more than 24% yesterday, prompting VRX options traders to flood the market with calls. These typically bullish bets made up 71% of the more than 750,000 contracts traded on VRX yesterday, indicating a warm reception from the speculative options crowd.
However, data from Trade-Alert.com reveals that not all of yesterday’s calls were of the buy-to-open variety. One rather large block of nearly 15,000 contracts traded at the October $15 call for the bid price of $1.35, or $135 per contract. In other words, this trader either placed an upside hedge against a VRX stock position, or outright bet against VRX topping $15 by October expiration — and pocketed a nice premium in the process.
As of this writing, Joseph Hargett did not hold a position in any of the aforementioned securities.
