U.S. stock futures are headed lower this morning, as Wall Street weighs its options on the possibility of another rate hike following hawkish monetary policy comments in the latest Federal Reserve minutes.
Additionally, economic data will be front and center, with weekly jobless claims, the May Philadelphia Fed’s manufacturing index and the April Chicago Fed National Activity Index all on tap.
At last check, futures on the Dow Jones Industrial Average were down 0.05%, with S&P 500 futures off 0.1% and Nasdaq-100 futures trading 0.32% lower.
Options volume surged on Wednesday, with institutional activity soaring following the release of the latest Fed meeting minutes. Overall, 15.2 million calls and 18 million puts traded yesterday, putting a rather cautious spin on speculative activity in the options pits. Equity-only activity on the CBOE was more subdued, however, with the single-session equity put/call volume ratio dipping to 0.75 and the 10-day moving average holding pat at 0.81.
In equity option news, Target Corporation (NYSE:TGT) confirmed fears of a struggling retail sector with its first-quarter earnings report, driving a surge in put volume for TGT stock. Wal-Mart Stores, Inc. (NYSE:WMT) stock sank more than 3% in sympathy with TGT, driving heavy put volume ahead of its own quarterly report this evening. Finally Cisco Systems, Corp. (NASDAQ:CSCO) stock appears poised to run after topping Wall Street’s earnings expectations after the close last night.
Target Corporation (TGT)
TGT stock plunged 7.6% on Wednesday, as traders punished Target for a weak first-quarter earnings report. For the quarter, Target said it earned $1.29 per share, topping estimates for $1.19 per share, but same-store sales of 1.2% missed guidance of between 1.5% and 2.5%. What’s more, revenue came in at $16.2 billion, just short of the expected $16.3 billion.
As expected, TGT was swamped with put options on Wednesday. Overall volume came in at a near-term high of more than 235,000 contracts, with puts snapping up 61% of the day’s take. With May 20 series options set to expire on Friday, TGT is trading well below all major call open interest strike, while the $68 put strike could emerge as support with nearly 4,000 contracts in OI. Just overhead, the May $69 put strike sports OI of 3,870 contracts, and the 5,000 and 7,000 puts at the $69.50 and $70 strikes appear poised to finish the week in the money.
Wal-Mart Stores, Inc. (WMT)
Walmart stock was collateral damage on Wednesday, plunging more than 3% in sympathy with TGT. The king of brick-and-mortar retailers stepped into the earnings confessional this morning, reporting earnings of 98 cents vs. expectations of 88 cents and revenue of $115.9 billion, above estimates of $113.2 billion.
On Tuesday, May 20 series implied were pricing in a move of about 3.5% for WMT stock this week. Initially, that move appeared to be lower, but, with TGT earnings driving the stock lower, the worst may already be priced in, and the stock was heading higher in premarket training. WMT options traders, however, were preparing for more potential losses, with puts accounting for 68% of the 355,000 contracts crossing the tape on WMT yesterday.
WMT ended Wednesday below all major call OI strikes in the May series, with peak put OI totaling more than 10,700 contracts at the $60 strike.
Cisco Systems, Inc. (CSCO)
Cisco proved it is still going strong, despite tough economic conditions in the tech sector. For the quarter, Cisco said it earned 57 cents per share on revenue of $12 billion, topping the analyst expectations for 55 cents on sales of $11.97 billion. Guidance was also strong, with Cisco projecting a profit of 59 cents per share to 61 cents, compared to Wall Street’s forecast for 58 cents.
Options activity was tepid ahead of the report, with calls only making up 54% of the 292,000 contracts traded on CSCO yesterday. CSCO was up more than 5% in premarket activity, placing the stock north of heavy May call OI of 32,600 contracts at the $28 strike for a while.
Still, there are 42,000 calls at the $30 strike that could still limit CSCO’s upside heading into May expiration this Friday.
As of this writing, Joseph Hargett did not hold a position in any of the aforementioned securities.
