U.S. stock futures are retreating this morning as Wall Street endures a bit of a sell-on-the-news event in the wake of France’s election results. Emmanuel Macron handily beat Marine Le Pen in this weekend’s French presidential election, a widely expected result despite last-minute email leaks from the Macron campaign. Oil prices are also applying pressure this Monday morning, slipping to $46.21 per barrel at last check.
Against this backdrop, futures on the Dow Jones Industrial Average are down 0.11%, while S&P 500 futures are off 0.07% and Nasdaq-100 futures have shed 0.08%.
On the options front, Friday’s volume arrived well ahead of average as traders prepared for gyrations in the wake of French elections. Overall, about 16.7 million calls and 14.4 million puts changed hands. On the CBOE, the single-session equity put/call volume ratio retreated to 0.64, while the 10-day moving average held at 0.66.
Driving Friday’s options activity, Tesla Inc (NASDAQ:TSLA) attracted mixed options activity despite analysts at Morgan Stanley speculating on an Apple Inc. (NASDAQ:AAPL) buyout. Meanwhile, Hyatt and Westin hotel operator ILG Inc (NYSE:ILG) attracted a flood of put volume after the company posted better-than-expected first-quarter earnings results. Finally, International Business Machines Corp. (NYSE:IBM) was hit with heavy put volume after Warren Buffett admitted he was wrong on the company.
Tesla Inc (TSLA)
Apple has quite the hoard of cash right now, and every analyst on Wall Street is speculating on what the iPhone maker will buy — especially since Apple only hiked its dividend by a disappointing 10.5%.
With the company recently receiving approval to test self-driving cars in California, Morgan Stanley speculated that Tesla could be on Apple’s shopping list. A similar remark by Citi’s Jim Suva helped boost TSLA stock more than 4.3% on Friday.
Surprisingly, typically speculative TSLA options traders were not amused by the suggestion. While total volume rose to a respectable 712,000 contracts on the day, calls only captured 46% of the day’s take. As I noted on Thursday of last week, puts have gained considerable attention on Tesla stock recently.
What’s more, as a result of Friday’s influx of put activity, the May put/call open interest ratio ballooned from Thursday’s perch at 1.15 to its current reading at 1.20. Currently, the May $300 put is the most popular, with more than 3,800 contracts in residence, as traders either speculate on support in the region via put sells, or snap up long puts betting on a decline.
ILG Inc (ILG)
ILG made a rare appearance on the top 10 most active options listing on Friday after the operator of the Hyatt, Westin and Sheraton hotel brands posted better-than-expected first-quarter earnings results.
Revenue for the quarter surged 58% to $452 million, while earnings arrived at 35 cents per share, up from 33 cents in the year-ago period.
Interestingly, puts were the options of choice following this earnings beat. Total volume spiked to a near-term high of 615,000 contracts, with puts accounting for a whopping 94% of the day’s take. Digging into the volume reveals that a 2018 Jan $17/$22 bull put spread was the likely culprit.
According to Trade-Alert.com, several large blocks of 30,000 and 10,000 contracts traded at both the 2018 January $17 and $22 strikes, with the former strike bought to open and the latter sold to open. The result was a 90-cent, or $90 per pair of contracts, credit spread, with the trader betting that ILG will not close below $22 before these options expire next January.
International Business Machines Corp. (IBM)
IBM stock was smacked for a loss of more than 2.5% on Friday, as traders reacted to a rare mea culpa from billionaire investor Warren Buffett.
Buffett reiterated his “I was wrong” comments over the weekend on IBM at Berkshire Hathaway Inc.’s (NYSE:BRK.B) annual shareholder meeting. Still, Buffett believes that IBM’s Watson has potential, but the company continues to lag in the AI market.
IBM options traders were quick to pile on the shares.
Friday’s volume saw 217,000 contracts cross the tape, with puts snapping up 56% of the day’s take. Furthermore, short-term options speculators have taken quite a bearish stance on IBM, with the May put/call OI ratio rising to a near-term high of 1.40. Peak put OI for the series lies well out of the money at the $120 and $125 strikes, however, indicating potential put selling activity and not outright bearish bets.
As of this writing, Joseph Hargett did not hold a position in any of the aforementioned securities.
