U.S. stock futures are poised to open in record territory this morning, as the Dow Jones Industrial Average pushes further north of 20,000. Corporate earnings and optimism for business-friendly policies out of the Donald Trump administration continue to push stocks steadily higher ahead of a fresh round of economic data this morning. Reports on tap today include weekly jobless claims, the January Markit services purchasing managers index, December’s leading economic indicators and new home sales.
Against this backdrop, futures on the Dow Jones Industrial Average have added 0.16%, with S&P 500 futures up 0.04% and Nasdaq-100 futures rallying 0.19%.
On the options front, volume was brisk on Wednesday, with about 20.2 million calls and 16.3 million puts crossing the tape. Over on the CBOE, the single-session equity put/call volume ratio fell to a one-month low of 0.61, though the 10-day moving average held at 0.65 for the sixth straight session.
Turning to Wednesday’s volume leaders, eBay Inc (NASDAQ:EBAY) saw mixed options activity ahead of last night’s quarterly report — which revealed robust holiday-shopping results for the retailer. Meanwhile, options traders geared up for Amazon.com, Inc.’s (NASDAQ:AMZN) quarterly report next week after a report from Slice Intelligence revealed that Amazon dominated holiday sales. Finally, Rite Aid Corporation (NYSE:RAD) continued to struggle amid falling expectations for a Walgreens Boots Alliance Inc (NYSE:WBA) buyout.
eBay Inc (EBAY)
EBAY stock is up over 7% in premarket trading after the company posted strong fourth-quarter earnings and guided higher for fiscal 2017. For the quarter, eBay said it earned 54 cents per share on revenue of $2.4 billion, beating expectations for 53 cents per share on revenue of $2.4 billion.
“During the holiday season, eBay was one of the top consumer shopping destinations in the world and the second most visited eCommerce site in the U.S.” eBay Chief Executive Devin Wenig said. Looking ahead, eBay predicted first-quarter earnings of 46 cents to 48 cents per share and full year results of $1.98 to $2.03 per share,
EBAY options traders were not all that enthusiastic heading into the report. Volume on Wednesday came in at more than 341,000 contracts, with puts making up 53% of the day’s take. What’s more, the 27 Jan put/call open interest ratio rests at an outsized reading of 1.31, indicating a heavy put presence and lack of confidence in eBay’s pending results.
The situation is similar looking out to Feb. options, where EBAY stock’s put/call OI ratio comes in at 1.31, though you can be sure calls will start to roll in following last night’s report.
Amazon.com, Inc. (AMZN)
Amazon.com, the 800-pound gorilla of the retail sector, will join earnings season next week, and a recent report from Slice Intelligence gave investors something to cheer about yesterday. According to Slice, Amazon commanded 38% of the U.S. eCommerce market during the 2016 holiday shopping season. By comparison, second-ranked Best Buy Co Inc (NYSE:BBY) eked out only a 3.9% market share and brick-and-mortar giant Wal-Mart Stores Inc (NYSE:WMT) managing even less at 2.6%.
The report bodes well for next week’s results, with Amazon expected to earn $1.41 per share on sales of $44.77 billion. That said, EarningsWhispers.com sets the bar higher at $1.46 per share.
AMZN options traders leaned heavily toward calls in yesterday’s session, with these typically bullish bets snapping up 59% of the more than 257,000 contracts traded. However, the 3 Feb put/call OI ratio of 1.27 indicates a heavier put presence where earnings are concerned. Still, given AMZN premiums, much of this weekly activity could be attributed to put selling as traders bank on collecting premium instead of shelling out for riskier, high-priced at- or out-of-the-money options contracts.
Rite Aid Corporation (RAD)
With less that two days until the agreed upon deadline, the Rite Aid/Walgreens deal still has no extension. The deal all but fell through on Monday after the FTC said the current plan to divest 865 stores to Fred’s, Inc. (NASDAQ:FRED) was not enough to avoid antitrust concerns. Investors expected a deal extension from Rite Aid and Walgreens, but both sides have refused to comment on the possibility at this point.
RAD stock has plunged more than 24% since Monday’s news, pushing the shares south of former support at $7. Should the deadline pass this Friday with no extension, we could see RAD fall even further. Options traders appear to be preparing for just such a development, as puts continue to dominate on RAD stock.
In yesterday’s trading, these typically bearish bets accounted for 60% of the 528,000 contracts crossing the tape yesterday.
What’s more, the Feb. put/call OI ratio has ballooned to a whopping 3.55, with puts more than tripling calls among options set to expire within the next month. Barring some news before Friday, these puts appear to be smart money on RAD stock.
As of this writing, Joseph Hargett did not hold a position in any of the aforementioned securities.
