Stocks are pointed lower heading into the open this morning, as the major market indices retreat from 2016 highs hit following a Fed-induced afternoon rally. In a statement, the Fed held rates steady and cut its forecasted schedule from four hikes in 2016 to just two due to a weakening global economy.
Options volume held the line on Wednesday, as weak morning activity gave way to an active afternoon session in the wake of the Fed’s dovish stance on interest rates. Overall, the CBOE single-session equity put/call volume ratio retreated to 0.71, while the 10-day moving average held at 0.7.
In equity options news, Bank of America Corp (NYSE:BAC) options activity spiked after the Fed scaled back its interest rate expectations for the year, potentially cutting into BofA’s revenue stream. Elsewhere, Oracle Corporation (NASDAQ:ORCL) calls gained momentum following strong cloud computing revenue and Peabody Energy Corporation (NYSE:BTU) shares were nearly halved as bankruptcy looms for the company.
Bank of America Corporation (BAC)
When the Fed laid out its plans for four rate hikes in 2016, Bank of America stockholders expected a steady rise in BofA revenue. Since the company’s bread and butter is profiting from lending, higher rates meant a stronger bottom line.
Now that the Fed has revised its course to just two hikes this year, those BofA revenue dreams are dwindling fast. As a result, BAC stock failed to follow the rest of Wall Street higher yesterday, falling nearly 2% on the session.
Options traders haven’t given up hope yet, however. In yesterday’s session, BAC call volume rose to account for 67% of the day’s total volume of roughly 728,000 contracts. Taking a closer look at the March series, BAC has fallen below peak call open interest of 145,000 call contracts at the $14 strike, and is now hovering around roughly 58,000 calls and the same number of puts at the $13 strike. Look for BAC to test support in the $13 region, and potentially head lower heading into the weekend.
Oracle Corporation (ORCL)
Oracle surprised investors with better-than-expected quarterly results after the close on Wednesday, but ORCL stock is still reaping the benefits. Yesterday, traders took note of the company’s impressive growth in cloud computing revenue.
Cloud revenue, which makes up roughly 8% of total revenue at ORCL, surged 40% in the most recent quarter, driving a wave of additional buying pressure for the shares. Additionally, Oracle announced that it is adding $10 billion to its share buyback plan.
Options traders have been having a field day with ORCL contracts. Volume has remained well above average for the past three sessions, with Wednesday’s volume coming in at more than 333,000 contracts. Furthermore, calls have dominated the ORCL options pits, making up 62% of yesterday’s volume alone.
In the soon-to-expire March series, ORCL is trading north of all major call OI strikes, including the 14,000 contracts at the $39 strike and the 7,500 calls at the $40 strike. Broad-market weakness today could force ORCL to test $40, so options traders will want to make sure they take profits or set appropriate stops on any March series earnings trades.
Peabody Energy Corporation (BTU)
After the stock plunged nearly 50% yesterday, I’m sure no one’s surprised to see Peabody stock appearing in today’s top ten most active options listing. There had been rumors in the air for nearly a week, but Peabody finally confirmed that it may be at risk of declaring bankruptcy yesterday. Specifically, Peabody said that it didn’t think it could continue operations if it failed to pay $70 million in interest that was due on Tuesday.
“We may need to voluntarily seek protection under Chapter 11,” Peabody said on Wednesday.
Options activity was brisk on BTU yesterday, with more than 215,000 contracts crossing the tape. Volume was nearly divided between puts and calls, with calls claiming just 52% of the day’s take. Naturally, BTU is trading well below peak March series call and put OI, but traders caught up quickly on Wednesday.
Currently, BTU is hovering between 17,800 puts at the $2.50 strike and 11,400 puts at the $2 strike. Notable call OI, meanwhile, numbers roughly 13,000 contracts at the $3 strike.
As of this writing, Joseph Hargett did not hold a position in any of the aforementioned securities.
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