U.S. stock futures are trading cautiously higher in premarket activity this morning, as Wall Street weighs its options ahead of a speech from Federal Reserve Chair Janet Yellen and a long holiday weekend.
Oil prices had been a supporting factor for the rally in stocks, but crude retreated in overseas activity, failing to hold the $50 per barrel level.
As a result, gains are limited this morning, with futures on the Dow Jones Industrial Average last seen higher by 0.10%, S&P 500 futures adding 0.08% and Nasdaq-100 futures gaining 0.22%.
Option volume evaporated on Thursday, as traders left early for the Memorial Day weekend. Overall, 11.8 million calls changed hands in the options pits compared to 11.4 million puts.
On the CBOE, the single-session equity put/call volume ratio hit its third monthly low in the past week, coming in at 0.55. The 10-day moving average also hit a one-month low of 0.70.
In equity option news, Netflix, Inc. (NASDAQ:NFLX) call volume popped after speculation spread that Apple Inc. (NASDAQ:AAPL) should acquire the online streaming company. Apple calls, meanwhile, were also active as the NFLX speculator drove technical buying when AAPL broke the $100 mark. Finally, technical traders also got their hooks into Tesla Motors Inc. (NASDAQ:TSLA), which capped $220 and TSLA’s 200-day moving average following a week-long battle.
Netflix, Inc. (NFLX)
Rumors and speculation are powerful forces on Wall Street, especially among options traders … they drive volatility. News that Apple was seriously considering buying Time Warner Inc. (NYSE:TWX) wormed its way back to NFLX on Thursday, as analysts threw around the idea that Netflix would be an even better acquisition for Apple, which all agree needs something big to break out of its funk.
In fact, a Financial Times article said exactly that: “Apple would be more likely to go after a streaming company such as Netflix than a pure content player.”
While options traders had been drifting toward puts ahead of yesterday’s churn, calls came roaring back for NFLX. Overall, 422,000 contracts traded on NFLX, with calls snapping up 56% of the day’s take — and, yes, 56% of daily volume is a relatively high level of call activity for NFLX, which typically sees heavy daily put volume.
As for open interest levels to watch, NFLX is trading north of peak put and call levels at the $100 strike in the weekly May 27 series — which expires today. However, call traders have shifted their target higher for the weekly June 3 series, with roughly 2,000 calls already open at the $103 strike. Further out in the monthly June series, there are more than 6,000 contracts at the $110 call strike.
Apple Inc. (AAPL)
AAPL stock also received a boost from yesterday’s NFLX speculation, with the shares eking out a close north of the $100 mark for the first time since April 26. News that Apple was looking to acquire Time Warner shocked more than a few AAPL watchers, especially since most agreed that NFLX would have been a much better fit for the company, even if it is considerably more pricey.
If you really need someone to make the case for an Apple acquisition of NFLX, InvestorPlace.com’s John Divine gives a good AAPL-NFLX analysis here.
Onward to AAPL’s options activity, which continued to trend toward call activity, but remained well below historical call daily averages. Specifically, more than two million AAPL contracts changed hands on Thursday, with calls accounting for about 59% of the day’s take — below AAPL’s average of 62%-63%.
Clearing the $110 strike has placed AAPL north of serious call OI at the $100 strike in both the weekly May 27 series and the weekly June 3 series. However, AAPL is now staring up at more than 20,000 calls at the $105 strike in the June series. With call OI at this strike more than doubling call OI at the $100 strike, we could be looking at ratio-spread activity in the June series — i.e., traders sold two $105 strike calls for every one $100 strike call purchased.
Tesla Motors Inc (TSLA)
After battling technical resistance at the $220 level all week, TSLA finally broke through in Thursday’s session. The $220 level had been a considerable hurdle for TSLA since May 5.
What’s more, TSLA’s momentum carried the shares past their 200-day moving average, which sparked a round of buying activity from technical traders.
In the options pits, TSLA saw 195,000 contracts cross the tape, with calls making up 54% of the day’s activity. Currently, peak weekly June 3 series call OI marks TSLA’s next technical hurdle, with more than 2,000 contracts accumulating at the $230 strike. This region is home to TSLA’s 50-day moving average, and a move above this trendline could see the shares quickly head back to the $250 region.
As of this writing, Joseph Hargett did not hold a position in any of the aforementioned securities.
