U.S. stock futures are trading lower once again, as the Donald Trump rally appears to be running out of steam. Wall Street appears to be in a holding pattern ahead of Friday’s inauguration, with the Dow Jones Industrial Average closing lower in the past four sessions. Today is also packed with economic data, as weekly jobless claims, December housing starts and the Philadelphia Federal Reserve index for January will all hit before the open.
At last check, futures on the Dow Jones Industrial Average were lower by 0.09%, S&P 500 futures had dropped 0.06% and Nasdaq-100 futures had shed 0.05%.
On the options front, volume remained brisk on Wednesday, with activity taking a turn toward protective puts ahead of Friday’s Jan. 2017 expiration and inauguration. In total, about 13.5 million calls and 15.9 million puts changed hands yesterday. Over on the CBOE, the added put volume pushed the single-session equity put/call volume ratio higher to 0.67, though the 10-day moving average ticked lower to 0.65.
Turning to Wednesday’s volume leaders, Netflix, Inc. (NASDAQ:NFLX) options activity was mixed ahead of what turned out to be another blowout quarter, with subscriber growth overseas blowing past expectations. Elsewhere, speculation is growing that Rite Aid Corporation’s (NYSE:RAD) pending acquisition by Walgreens Boots Alliance Inc (NYSE:WBA) will receive approval before Friday’s inauguration. Finally, Alibaba Group Holding Ltd (NYSE:BABA) options volume is on the rise ahead of next week’s quarterly report.
Netflix, Inc. (NFLX)
Netflix stepped onto the earnings stage last night to report fourth-quarter earnings of 15 cents per share on revenue of $2.48 billion. Both figures bested the Street’s consensus estimates for 13 cents per share and $2.47 billion in revenue, but it was subscriber growth that has investors excited this morning.
The company said it added 7.05 million net new members in the quarter, handily besting its own forecast for 5.2 million. In fact, Netflix added almost that many international subscribers, with 5.12 million overseas signups. At this pace, Netflix will be bigger outside of the U.S. than it is stateside.
Options traders did not seem prepared for the better-than-expected results. Volume nearly hit 504,000 contracts, with puts making up 52% of the day’s take. As I noted yesterday, peak Jan 2017 call and put open interest resides at the in-the-money $130 strike, leaving plenty of overhead for the shares. NFLX is set to open north of $144 this morning, placing the shares well above all but the most optimistic options strikes.
Rite Aid Corporation (RAD)
The Walgreens’ buyout of Rite Aid has been on the table since 2015. That’s quite a long time, but the wait could be over soon, according to a poll at a major industry trade publication. According to The Drug Store News, respondents to the poll expect the deal to be approved before Donald Trump is sworn into office this Friday, beating any potential blowback from Trump, who has stated he is not in favor of such deals when commenting on AT&T Inc’s (NYSE:T) plans to acquire Time Warner Inc (NYSE:TWX).
RAD options traders, however, aren’t buying the optimism. In fact, they’re downright pessimistic about the prospects for the Walgreens’ deal. Put volume on RAD stock has risen sharply in recent weeks, capped by a surge on Wednesday. Total volume on the day rose to 241,000 contracts, with puts snapping up 97% of the day’s take.
According to Trade-Alert.com, the most popular strikes on the day were the Jan. 2017 $5 and the Feb. $5 strikes, both of which saw buy-to-open activity in blocks of 30,000 to 20,000 contracts. With RAD hovering near $8.65, those are some rather bearish predictions from the options community for Rite Aid stock.
Alibaba Group Holding Inc (BABA)
Donald Trump’s war of words with China has not been kind of BABA stock, leading Alibaba CEO Jack Ma to express his desire to avoid a trade war between the two countries at any cost. Geopolitical concerns will be one of the major focuses when Alibaba steps into the earnings ring on Tuesday next week. Analysts are expecting a profit of $1.13 per share on revenue of $7.3 billion, though EarningsWhispers.com puts the whisper number at $1.16 per share.
Options traders appeared optimistic yesterday on BABA stock’s prospects. Total volume came in at 177,000 contracts, with calls accounting for an above average 64% of the day’s take.
Currently, BABA options traders have their sights set on the 27 Jan. $100 strike, where peak call OI of 3,800 contracts currently resides. Peak put OI for the series, meanwhile, numbers 1,500 contracts at the just out-of-the-money $95 strike.
As of this writing, Joseph Hargett did not hold a position in any of the aforementioned securities.