U.S. stock futures are experiencing more up-and-down this morning, as Wall Street tries to recoup more of its post-Brexit losses.
Gold futures have fallen lower, with the precious metal last seen down 0.58% at $1,320.10, as risk appetites strengthen. Traders will also weight their options on weekly jobless claims and the June Chicago Purchasing Managers Index (PMI).
Heading into the open, futures on the Dow Jones Industrial Average are up 0.05%, while S&P 500 futures have gained 0.04% and Nasdaq-100 futures are about flat.
While off its recent Brexit-driven peak, options activity held above average on Wednesday with 16.6 million calls and 14.9 million puts changing hands. The shift toward calls was most apparent over on the CBOE, where the single-session equity put/call volume ratio fell for a third straight session to 0.58. The 10-day moving average dipped to 0.70.
In equity option news, Citigroup Inc (NYSE:C) calls are set to soar as the company increases shareholder payouts following successful Federal Reserve stress tests. Meanwhile, Netflix, Inc. (NASDAQ:NFLX) saw a pair of brokerage firms encourage clients to buy the Brexit dip in NFLX stock. Finally, Tesla Motors Inc (NASDAQ:TSLA) is running out of shortable shares as bearish bets surge on the company’s SolarCity Corp (NASDAQ:SCTY) acquisition.
Citigroup Inc (C)
While Bank of America Corp (NYSE:BAC) has received the lion’s share of attention heading into the Fed’s banking stress tests, Citigroup has stolen the show after last night’s results. The banking giant more than tripled its quarterly dividend payout to 16 cents per share from five cents per share and boosted its share buyback program to $8.6 billion from $7.8 billion last year.
C stock jumped more than 4% in anticipation of the news, reclaiming its 10-day moving average. Heading into the open, C is eyeing its 20-day trendline as the shares have gained another 1%.
Options traders were nearly all in on C stock during Wednesday’s action. Overall, 446,000 contracts traded on Citigroup stock, with calls snapping up 66% of the day’s take. Currently, peak weekly July 1 series open interest totals 13,200 contracts at the $41 put strike, while 9,558 calls are open at the $41.50 strike. Call traders, however, are in the process of shifting their target higher, with the July $43 and $44 strikes sporting about 7,000 contracts each.
Netflix, Inc. (NFLX)
Like most stocks, NFLX took a beating following the Brexit vote. The shares plunged below the $90 mark, exacerbating NFLX’s already steep June losses. The shares are looking to turn things around quickly, however, and analysts at RBC Capital and Pacific Crest are helping.
Both brokerage firms believe that NFLX is a buying opportunity following the Brexit selloff, with RBC Capital stating that “Netflix still offers a highly attractive global customer value proposition,” while Pacific Crest said it believes that “ international sub growth will reaccelerate in Q3.”
NFLX options traders were reluctant to dive back into bullish positions on the stock, however. Total volume came in at over 260,000 contracts, with calls only managing 55% of the day’s take. Sentiment remains rather bearish on NFLX overall among options traders, with the stock’s July/August put/call open interest ratio arriving at 1.01, with puts outnumbering calls among intermediate-term options contracts.
Tesla Motors Inc (TSLA)
Tesla motors is running out of shortable shares according to Ihor Dusaniwsky, Managing Director at S3 Partners. In commentary to Reuters earlier this week, Dusaniwsky said “There is not much stock left to borrow and what is left is going out the door at premium levels with borrow rates of 45% to 75% fee today.”
Clearly, short sellers are betting big against TSLA stock as Tesla moves to complete its buyout of SolarCity. According to Dusaniwsky, TSLA short interest is up 16% in June at $7.3 billion and it’s close to its March high of $7.4 billion.
This heavy shorting activity could explain the recent rise in TSLA call activity, which has taken place despite the rising bearish sentiment surrounding the SCTY buyout. Specifically, short sellers will often hedge their positions by purchasing calls. With new short positions being added at breakneck speed and market volatility still far from settled, a little call-insurance on a new short position is to be expected.
Turning to Wednesday’s options activity, TSLA saw 271,000 contracts change hands, with calls accounting for 56% of the day’s take. Overall, TSLA’s put/call OI ratio for July/August has fallen this week to perch at 0.98, down considerably from its recent perch north of 1.10.
As of this writing, Joseph Hargett did not hold a position in any of the aforementioned securities.
