U.S. stock futures are trending higher this morning, at least all save the tech-laden Nasdaq Composite. Banking stocks are leading the way after three of the U.S.’s biggest banks passed the Federal Reserve’s stress tests. According to the Fed, U.S. banks have “strong” levels of capital and should be able to survive even a severe recession and keep lending.
Against this backdrop, futures on the Dow Jones Industrial Average have added 0.07%, S&P 500 futures are up 0.04% and Nasdaq-100 futures have dropped 0.61% as traders take profits from yesterday’s gains.
On the options front, volume remained in line with average for the past several weeks. About 15.1 million calls and 12.2 million puts changing hands on Tuesday, as bullish bets rose amid a broad Wall Street rally. On the CBOE, the single-session equity put/call volume ratio bounced to 0.68, while the 10-day moving average held at 0.64.
Driving Wednesday’s options activity, Bank of America Corp (NYSE:BAC) calls were in high demand after the banking giant boosted its dividend and increased its share buyback program. Meanwhile, Rite Aid Corporation (NYSE:RAD) call traders are going to be sorely disappointed as the Walgreens Boots Alliance Inc (NYSE:WBA) merger deal has fallen through. Finally, Advanced Micro Devices, Inc. (NASDAQ:AMD) dropped on news that Nvidia Corporation (NASDAQ:NVDA) was developing a GPU designed specifically to mine cryptocurrencies.
Bank of America Corp (BAC)
After passing the Fed’s stress tests with flying colors, Bank of America went out and heaped the rewards on its shareholders. BofA hiked its dividend by 60% to 12 cents per share and authorized a share buyback program of $12 billion through June next year. It was everything BAC stock traders were looking for after the Fed stress tests, and the shares responded by rallying more than 2.5% yesterday.
What’s more, BAC stock is up another 3.2% this morning, rewarding the flood of call traders in Wednesday’s session. Volume spiked to more than 1.2 million contracts, with calls gobbling up roughly 79% of the day’s take. Mixed in with that volume was the largest block trade of the day, according to Trade-Alert.com.
A block of 60,000 July $24 strike calls traded late in the day for the ask price of 59 cents, or $59 per contract. Breakeven for the trade is $24.59, which BAC is hovering just below in premarket trading this morning — anything above that is pure profit for this trader.
Rite Aid Corporation (RAD)
Earlier in the week, RAD stock shot more than 30% higher on news that the Walgreens merger deal was close to a breakthrough. But, with regulators breathing down their necks, that deal did not take the form many were hoping for. Walgreens officially ended its bid to merge with Rite Aid, choosing instead to pay a $325 million termination fee and simply buy 2,186 Rite Aid stores, three distribution centers and related inventory for about $5.18 billion.
As you might suspect, RAD stock is crashing this morning, down more than 20% at last check.
Hopeful that the merger would go through, RAD options traders flooded the stock with calls yesterday. Volume reached nearly 339,000 contracts, with calls snapping up 69% of the day’s take. Short-term speculators had heavily favored the 30 Jun $3.50 and $4 call strikes, with open interest rising to 13,000 contracts and 17,000 contracts, respectively. These bullish best, which expire at the close of trading tomorrow, are now likely a wash with RAD already dropping below $3 this morning.
Advanced Micro Devices, Inc. (AMD)
Speculation continues to run rampant on both AMD and Nvidia. Yesterday, news broke that Nvidia was readying the release of two new cryptocurrency-specific GPUs, which would be available in the third quarter. AMD had seen a spike in demand recently due to its dominance among cryptocurrency miners, and it looks like Nvidia is looking to edge in on that demand. “As these new products are more price competitive, they may pose a risk to AMD’s current offerings in the market,” Susquehanna Financial noted.
AMD stock fell sharply on the news, and options traders backed away from their recent preference for calls. Specifically, volume came in at 393,000 contracts, but calls only managed to eke out 57% of the day’s take.
That said, AMD’s July put/call OI ratio remains at a bullish reading of 0.50, with calls more than doubling puts among front-month options. In short, options traders remain firm that it will take more than a couple cryptocurrency cards to undermine the company’s current market strength.
As of this writing, Joseph Hargett did not hold a position in any of the aforementioned securities.
