U.S. stock futures are trading flat to lower in premarket activity this morning, as Wall Street searches for options ahead of the latest Federal Reserve policy meeting minutes. The weekly U.S. crude stockpiles report is also due out later this morning, though front-month oil is already on the rise, hovering just below $48.50 per barrel.
At last check, futures on the Dow Jones Industrial Average were down 0.1%, with S&P 500 futures and Nasdaq-100 futures trading flat.
Options volume rose sharply on Tuesday, as traders shook off a Monday hangover. Some 26.5 million equity contracts changed hands yesterday, with the SPDR S&P 500 ETF Trust (NYSEARCA:SPY) — 4.7 million contracts — and the iShares Russell 2000 Index (ETF) (NYSEARCA:IWM) — 1.6 million contracts — dominating activity.
What’s more, puts were extremely popular for both the IWM and the SPY, accounting for more than 70% of daily volume each. On the CBOE, the single-session equity put/call volume ratio rebounded to 0.81, while the 10-day moving average held at 0.81.
In equity option news, Baxter International Inc (NYSE:BAX) has attracted a flood of put volume as the stock appears to be in danger of breaking out of its current uptrend. Meanwhile, Delta Air Lines, Inc. (NYSE:DAL) was reiterated at “buy” for the third time in the past month, while Freeport-McMoRan Inc (NYSE:FCX) was upgraded to “buy” at Jefferies.
Baxter International Inc (BAX)
BAX stock has been in an impressive uptrend since January, rallying along support at its 10-day and 20-day moving averages. That trend appears to be in danger, however, as BAX retreats from resistance near $47. In fact, the stock logged its first close below its 10-day trendline since mid-March, leading many options traders to look for protection.
As a result, put volume swelled on BAX to account for 51% of the roughly 862,000 contracts traded on Tuesday. What’s more, puts have accumulated at the May 20 series $45 strike, totaling more than 12,900 contracts — outstripping all other OI in the series, save the massive 85,000-contract put and call positions at the $55 strike.
Look for BAX to retest support at its 20-day trendline in the $44.50 region. A breach of this trendline could spell a reversal for the stock.
Delta Air Lines, Inc. (DAL)
Morgan Stanley became the third brokerage firm in the past month to reiterate DAL stock with a “buy” rating. Previous reiterations came from Merrill Lynch and Wolfe Research. Morgan Stanley currently maintains a price target of $59. According to Thomson/First Call, DAL sports 14 buy ratings, compared to one hold and no sell ratings.
DAL stock reacted by adding more than 1.5% on Tuesday, driving elevated short-term call volume. Overall, some 208,000 contracts crossed the tape on DAL yesterday, with calls snapping up 78% of the day’s take.
DAL is in the process of rebounding from last week’s lows near $41, and the shares have overtaken their 10-day and 20-day moving averages. Peak May 20 series call OI totals nearly 37,000 contracts at the $50 strike, but traders should keep a closer eye on 8,700 calls just overhead at the $44 strike, as these could create some headwinds as DAL approaches May expiration this Friday.
Freeport-McMoRan Inc (FCX)
Sentiment has grown quite bullish on gold and gold stocks recently, with Goldman Sachs and Citigroup changing their tunes to bullish on the precious metal. Fear of Fed rate cuts and negative rates have driven investors into gold and mining stocks, but the broadening acceptance and growing bullish sentiment has led some to believe that the gold rally may soon come to an end.
That said, Freeport-McMoRan is certainly benefiting from the added attention. In fact, Jefferies joined the fray yesterday, lifting FCX stock to “buy” from “hold” and issuing a $15 price target.
Options traders are also warming up to FCX, with calls making up 57% of the 252,000 contracts in total volume on the stock yesterday. Heading into May expiration, FCX is trading north of peak May call OI of 39,400 contracts at the $11 strike, though another 26,000 calls at the $12 strike could limit FCX’s upside this week.
As of this writing, Joseph Hargett did not hold a position in any of the aforementioned securities.
