U.S. stock futures are pointing toward another round of losses, as Wall Street continues to fret over President Donald Trump’s immigration policies after he fired acting Attorney General Sally Yates. Meanwhile, the Federal Reserve is set to begin its two-day policy meeting, where the Federal Open Market Committee is expected to keep rates on hold for now.
Against this backdrop, futures on the Dow Jones Industrial Average have shed 0.17%, while S&P 500 futures are down 0.2% and Nasdaq-100 futures have fallen 0.22%.
On the options front, puts are beginning to gain traction amid U.S. political uncertainty. On Monday, about 13.1 million calls and 14.1 million puts crossed the tape. On the CBOE, a swell in put activity launched the single-session equity put/call volume ratio to a three-month high of 0.82, driving the 10-day moving average to its own three-month high of 0.68.
As for Monday’s volume leaders, Rite Aid Corporation (NYSE:RAD) saw a surge in put volume after Walgreens Boots Alliance Inc (NASDAQ:WBA) slashed its offer by roughly $2 billion. Elsewhere, Bank of America Corp (NYSE:BAC) shed nearly 2% on geopolitical woes despite rumors that Republicans in Congress were looking to fast track deregulation. Finally, Pfizer Inc. (NYSE:PFE) options traders piled into calls ahead of this morning’s quarterly report, though they may be disappointed with the results.
Rite Aid Corporation (RAD)
RAD stock plummeted more than 17% on Monday after Walgreens cut its offer to buy Rite Aid to $6.50 to $7 per share, down sharply from the original offer of $9 per share in October 2015. Walgreens said it would now take six months longer to finalize the deal and it expects to divest more stores to gain approval. The valuation range for RAD stock depends on how many stores Walgreens will need to sell to make the deal happen.
Once again, RAD options traders responded by piling into puts. Volume surged to a near-term high of 824,000 contracts, with puts snapping up 71% of the day’s take. Among the more notable trades highlighted by Trade-Alert.com was a large 19,900 contract block of Feb. $5 puts, which were sold for a bid of 5 cents, or $5 per contract.
Essentially, the trader is either hedging a long RAD stock position, or betting that RAD shares will not fall below $5 per share before Feb options expire next month.
Bank of America Corp. (BAC)
It looks like financial investors, especially those holding BAC stock, are going to get what they want out of the new Republican Congress … and in a hurry. At a retreat this weekend, Speaker of the House Paul Ryan said that deregulation of the financial industry is a top priority in 2017, with gutting the Dodd-Frank Act high on the list.
All of this adds up to a bigger bottom line for banking giants like Bank of America.
And yet, options traders appeared mixed in Monday’s action. Volume for BAC stock options hit 757,000 contracts, but calls were only able to eke out 51% of the day’s take, as the shares dropped nearly 2% on the day.
What’s more, quite a bit of Monday’s action was buying activity, with a block of purchased 10,000 Feb. $22 puts underscoring the bearish sentiment. This block traded at the ask price of 20 cents, or $20 per contract, and hits breakeven when BAC stock trades at $21.80 — a roughly 5.3% dip from BAC’s close on Monday.
Pfizer Inc. (PFE)
Pfizer bulls were marching in the options pits yesterday, as these typically bullish bets made up 72% of the more than 194,000 contracts traded on PFE stock. Among the highlights, according to data from Trade-Alert.com, was a roughly 16,000 contract block trade at the 3 Feb. $31.50 strike, which crossed at the ask price of 18 cents, or $18 per contract. With these PFE options expiring this Friday, this was clearly a bullish play on Pfizer ahead of this morning’s quarterly report.
Unfortunately, for PFE call options traders, they aren’t going to get the rally they were hoping for. Bright and early this morning, Pfizer reported a fourth-quarter profit of 47 cents per share on revenue of $13.63 billion. Earnings whiffed the Street’s expectations for 50 cents per share, while sales arrived in line.
Additionally, guidance came in light, with Pfizer forecasting 2017 adjusted earnings of $2.50 to $2.60, versus the consensus of $2.59, and revenue of $52 billion to $54 billion, below expectations for $54.5 billion.
PFE stock was last seen trading lower by 1.3% in premarket action.
As of this writing, Joseph Hargett did not hold a position in any of the aforementioned securities.