U.S. stock futures are trending higher in premarket trading, as a relief rally attempts to take shape following Hillary Clinton’s win over Donald Trump in last night’s presidential debate.
However, concerns that Germany won’t bail out Deutsche Bank AG (USA) (NYSE:DB) and plunging oil prices have thrown a wet towel on the revelry. At last check, crude oil was off 1.28% after Iran and Saudi Arabia dashed hopes for a production cap.
Against this backdrop, futures on the Dow Jones Industrial Average are flat, while S&P 500 futures have added 0.02% and Nasdaq-100 futures are up 0.06%.
Monday’s options activity was reserved ahead of last night’s presidential debate — the first such meeting between Clinton and Trump. Overall, a below-average 11.9 million calls and 12.8 million puts changed hands on the session. On the CBOE, the single-session equity put/call volume ratio jumped to a two-week high of 0.73, while the 10-day moving average ticked higher to 0.65.
Driving Monday’s options activity, Bloomberg reported that Twitter Inc’s (NYSE:TWTR) mysterious suitor was none other than blue-chip entertainment giant Walt Disney Co (NYSE:DIS), while Bank of America Corp‘s (NYSE:BAC) investment banking unit, Merrill Lynch, was fined $12.5 million by the SEC for trading violations. Finally, troubled German banking giant Deutsche Bank drew record put volume following reports that Chancellor Angela Merkel has ruled out bailing out the firm.
Twitter Inc (TWTR)
According to Bloomberg, Walt Disney has emerged as the rumored potential suitor to buyout struggling social network firm Twitter. Per the report, Disney is working with a financial adviser to potentially make a bid for TWTR. But Disney may not be the only horse in the race, as reported surfaced late-Monday that Microsoft Corporation (NASDAQ:MSFT) could also be in the running. These rumors follow on the heels of last week’s report that Salesforce.com, Inc. (NYSE:CRM) and Alphabet Inc (NASDAQ:GOOG, NASDAQ:GOOGL) were also interested in making a bid for Twitter.
Options traders thrive on this type of speculation, and TWTR options traders are no exception. The stock saw a second-straight session of record-high options volume, with nearly 900,000 contracts changing hands on Monday. Calls remained the most popular contracts, accounting for 66% of the session’s total.
Short-term speculation has ramped up considerably, with more than 14,400 calls now residing at the weekly September 30 $24 strike, with another 11,700 calls now open at the $25 strike. By comparison, peak put OI for the series numbers more than 20,000 contracts at the $22 strike.
According to Trade-Alert.com, unusual activity on TWTR includes a 40,000 contract December $20/$30 bull spread — with 20,000 $20 strike calls purchased for $4.50 and 20,000 $30 strike calls sold for 45 cents. The spread was opened in the money, and appears designed with a potential buyout offer near $30 per share for TWTR.
Bank of America Corp (BAC)
BofA was hit with yet another fine on Monday, after the SEC punished investment banking unit Merrill Lynch with a $12.5 million fine for “ineffective trading controls that failed to prevent erroneous orders from being sent to the markets and causing mini-flash crashes.”
Adding to Bank of America’s woes, the company announced it was cutting jobs in its investment bank in Asia. While the jobs lost will be in the dozens, and $12.5 million is a drop in the bucket for BofA, the pair of reports had a decidedly negative impact on sentiment across the board.
In the BAC options pits, total volume arrived at 713,000 contracts, with calls accounting for 60% of the day’s take. However, while this added call volume may appear bullish, call OI fell on the session, continuing a recent trend for BAC. In fact, the September/October put/call open interest ratio has ballooned to a near-term high of 1.12, with puts outnumbering calls among short-term OI. A continued shift toward puts and a liquidation of BAC calls could be a bearish signal.
Deutsche Bank AG (USA) (DB)
If you’ve been following along, then you know that Deutsche Bank is facing a whopping $14 billion fine from the U.S. Justice Department to settle a recent mortgage-backed securities probe. The fine is easily more than Deutsche Bank’s market capitalization, and while many don’t believe the full fine will be levied, it has raised serious concerns that Deutsche Bank will need a bailout to survive.
Reports emerged yesterday that German Chancellor Angela Merkel nixed that idea, ruling out state assistance and prompting another 7% plunge for DB stock.
With DB stock slumping to a near-25-year low, put traders have begun to pile on in earnest. Monday’s volume soared to 183,000 contracts, pushing DB to a rare appearance on the most active options listing. What’s more, puts snapped up 73% of yesterday’s total volume.
Short-term activity has been particularly brisk, with OI now totaling more than 28,000 contracts at the October $10 strike as traders bet on DB slipping into single digits. Peak call OI for the series is slightly less, numbering about 26,000 contracts at the overhead $16 strike.
As of this writing, Joseph Hargett did not hold a position in any of the aforementioned securities.
