Wall Street was awash in red on Friday, as weak Chinese economic data continued to pressure global stocks lower. On the day, the major market indices plunged more than 3% across the board, with the Dow Jones Industrial Average falling into correction territory. Heading into the open this morning, stocks are set to extend Friday’s losses, with futures pointed sharply lower in pre-market trading.
In the options pits, volume spiked to near-term highs as puts flooded the CBOE. Overall, the CBOE’s single-session equity put/call volume ratio soared to an annual high of 1.04, driving the 10-day moving average to its own annual peak of 0.77.
In equity options activity, only three stocks on Friday’s top ten most active options listing saw more call contracts trade than puts: Bank of America Corp (NYSE:BAC) drew heavy call activity despite concerns that the Fed may delay an interest rate hike beyond its scheduled September meeting on monetary policy, Facebook Inc (NASDAQ:FB) also was popular with call traders after data revealed an increase in Instagram user logins, and Gilead Sciences, Inc. (NASDAQ:GILD) was also call heavy following news that its investigational HIV-1 treatment was validated for marketing in the European Union.
Bank of America Corp (BAC)
BAC stock fell nearly 4% on Friday, as stocks plunged across the board following the release of yet another poor Chinese economic report. This continued weakness in Chinese economic growth could prompt the Fed to hold off on a widely anticipated interest rate hike at its September monetary policy meeting. As such, growth in Bank of America’s bottom line could be hit, as analysts were expecting higher revenue to arrive on the heels of the rate hike.
Despite the dour portent, BAC options traders remained call heavy on the stock. In Friday’s trading, BAC saw a short-term record 605,922 contracts change hands. Furthermore, calls accounted for 61% of Friday’s total volume.
Looking at weekly Aug 28 series options, the $17.50 strike could be a point of focus, as it is home to peak call and put open interest totaling 13,770 contracts and 13,587 contracts, respectively.
That said, if premarket selling pressure carries over into the open, BAC options traders may want to consider adjusting their targets toward the $15 strike for weekly August 28 series options.
Facebook Inc (FB)
FB stock fell roughly 5% on Friday, and the stock is down another 4% in pre-market trading this morning. Despite the losses, which now have Facebook trading just north of its 200-day moving average, option traders were call heavy on Friday. Volume on the day surged to 592,520 contracts — a short-term high for FB stock. Furthermore, calls accounted for 62% of all of FB’s options volume on Friday.
Despite the broad selloff, Facebook remains an attractive stock for investors due to the company’s continued user growth and ad revenue. This stance was reinforced on Friday following a Pew Research report that revealed that daily Instagram user logins rose to 59% in the most recent month compared with just 49% in September last year. Furthermore, Facebook’s daily user logins rose from 70% to 72%.
Gilead Sciences, Inc. (GILD)
GILD stock shed more than 6% on Friday, and the stock is down nearly another 6% in premarket trading this morning. Despite the losses, GILD calls outweighed puts on Friday, with traders likely keying off a report that Gilead’s once-daily HIV-1 treatment was validated for marketing by the European Medicines Agency.
Returning to options activity, 166,010 contracts traded on GILD on Friday, with calls accounting for 53% of those contracts. Peak put and call open interest for the weekly August 28 series currently rests at the $113 and $118 strikes, respectively. However, with GILD stock trading near $100 in premarket activity, look for heavy option volume in that region throughout the day. With only 131 calls and 617 puts currently open at the Aug $100 strike, any new volume here should be the initiation of new open positions.
As of this writing, Joseph Hargett did not hold a position in any of the aforementioned securities.
