Are you tired of hearing about the Federal Reserve yet? Because Wall Street is tired. U.S. stock futures are mired in the red across the board this morning as interest-rate uncertainty kicked up a notch heading into tomorrow’s speech by Fed Chair Janet Yellen. Meanwhile, weekly jobless claims, July durable goods orders and July core capital goods orders are on tap later this morning.
Options activity recovered to normal levels on Wednesday, though puts were leading the way. In fact, 13.2 million puts and 12.3 million calls traded yesterday, as fears rose heading into Friday. Over on the CBOE, the single-session equity put/call volume ratio also climbed higher, arriving at a one-week high of 0.68. The 10-day moving average ticked higher t0 0.60.
The Fed provided ample fuel for Wednesday’s options activity, with Bank of America Corp (NYSE:BAC) and Barrick Gold Corporation (USA) (NYSE:ABX) both seeing a spike in volume ahead of tomorrow’s Yellen speech in Jackson Hole. Meanwhile, Facebook Inc (NASDAQ:FB) is reportedly diving into header bidding for ads in an attempt to keep pace with Alphabet Inc (NASDAQ:GOOG, GOOGL).
Bank of America Corp (BAC)
Bank of America saw increased options traffic on Wednesday, as traders speculated on the potential for rising revenue in its investments unit due to a Fed interest rate hike. What’s more, BAC stock should continue to see heavy volume through the end of the week. That said, some rates, like Libor, are already rising, providing a hefty benefit for Bank of America even without the Fed’s help.
Naturally, options traders have already picked up on this, and call activity has risen steadily on BAC for the past month. On Wednesday, calls made up 69% of the 753,000 contracts traded on BAC stock, extending the trend. And, judging from activity on Trade-Alert.com, much of Wednesday’s action was of the buy-side variety.
Specifically, a block of roughly 46,000 Sept $15.50 call contracts crossed yesterday at the ask of 29 cents, or $29 per contract, while another block of nearly 25,000 $15.50 strike calls traded in the weekly Sept 2 series for the ask of 21 cents, or $21 per contract. BAC closed yesterday at $15.40, putting these contracts just out of the money.
Barrick Gold Corporation (USA) (ABX)
While investment banks are on the rise, gold mining companies are getting punished – mostly due to the fact that as rates rise, so too does the U.S. dollar, pushing gold prices lower. On Wednesday, gold futures fell 1.2%, driving ABX stock down more than 9.5% in response. More hawkish comments from Fed Chair Janet Yellen could send ABX stock even lower.
ABX options traders are preparing for the worst, it seems. Yesterday’s volume swelled to a near-term high of roughly 190,000 contracts, with puts accounting for 54% of the day’s take. Digging deeper reveals a block of 9,500 January 2018 $15 puts that crossed at the mid of $2.14, or $214 per contract, according to Trade-Alert.com. Since the trade crossed at the mid, it’s hard to tell if these options were bought or sold — a data point that would tell us if the trader is expecting ABX to fall below $15 or hold above the strike through expiration.
Facebook Inc (FB)
Facebook opened up a new front in its ad revenue wars with Google yesterday. News broke that the social media giant was opening up ad header bidding. Header bidding allows multiple exchanges to compete for the ad slots they want most, driving up ad rates, and padding Facebook’s pockets.
Options traders showed little reaction to the news, however, as a below-average 271,000 contracts traded on FB stock. Calls still remained dominant, however, accounting for 63% of the day’s take.
Looking out to the September series, we find that the $125 strike is the focus of much attention. More than 31,000 calls are currently open at this now front-month strike. It would appear that more than a little call-spread action is taking place as well, with nearly 47,000 calls open at the $130 strike.
As of this writing, Joseph Hargett did not hold a position in any of the aforementioned securities.