U.S. stock futures are trading mostly higher this morning, as Wall Street turns its attention toward economic data in the wake of the Federal Reserve’s interest-rate hike. Key reports on housing and consumer sentiment are due out this morning, with May U.S. housing starts and building permits followed by the University of Michigan June consumer sentiment survey.
Against this backdrop, futures on the Dow Jones Industrial Average are up 0.13%, with Nasdaq-100 futures rising 0.17% and S&P 500 futures adding 0.15%.
On the options front, volume is soaring ahead of today’s June options expiration. Thursday’s volume topped 19.9 million calls and 117.3 million puts. Over on the CBOE, put activity popped to its highest level since January, as the single-session equity put/call volume ratio soared to 0.80 ahead of June expiration. The 10-day moving average ticked higher to 0.63 as a result.
Diving into Thursday’s options activity, Facebook Inc (NASDAQ:FB) saw call traders hesitate following news that the company was delaying the release of its new video tab. Meanwhile, a new report from Gartner ranked Alibaba Group Holding Ltd’s (NYSE:BABA) cloud services fourth in the world, behind offerings from several Big Tech mainstays. Finally, Yamana Gold Inc. (USA) (NYSE:AUY) made a surprise appearance on the top 10 most active options listing amid a wave of put volume following the Fed rate hike.
Facebook Inc (FB)
It’s no secret that Facebook is looking to join the online streaming video movement. The company hopes to disrupt the TV ad market, and funnel some of that cash into its own pockets via it’s own ad network.
But while Facebook is paying a premium to secure streaming content, it’s having trouble getting its service off the ground. Dubbed Spotlight, the Facebook’s video streaming tab debut has been delayed to fall, costing the company a successful bid to host a live stream of singer Katy Perry and her new album — which was forfeited due to Spotlight’s delay.
Amid that difficulty, as well as general malaise in the tech sector, FB stock has seen a slowdown in call activity lately. Volume topped 659,000 contracts on Thursday, with calls only managing 59% of the day’s take — significantly less than the stock’s average daily call percentage in the 64%-65% range.
What’s more, this decline in call adds has affected Facebook’s July put/call open interest ratio, which has risen from readings in the low 0.6 area to its current perch at 0.79, as FB puts gain in popularity amid a growing shift in sentiment.
Alibaba Group Holding Ltd (BABA)
BABA stock has come off its recent highs north of $140 in the past week, but it wasn’t hit as hard as most of the tech sector during the recent flash crash.
While it drifted lower again yesterday, Alibaba could get a boost today after Gartner rated the company’s cloud services unit fourth in the world in its annual IaaS Magic Quadrant report, placing Alibaba just behind Amazon.com, Inc. (NASDAQ:AMZN) AWS, Microsoft Corporation (NASDAQ:MSFT) Azure and offerings from Alphabet Inc (NASDAQ:GOOGL). That’s some rich company considering Alibaba has yet to make any serious headway outside of China.
Options traders haven’t let the recent turmoil in the tech sector break their resolve on BABA stock.
In Thursday’s trading, Alibaba saw volume top 554,000 contracts, with calls snapping up 66% of the day’s take. Furthermore, the July put/call OI ratio has plunged to a reading of 0.41 as calls now more than double puts among near-term options. Peak call OI for the series currently totals more than 44,000 contracts at the $140 strike, which, up until Tuesday, was trading in the money.
Yamana Gold Inc. (USA) (AUY)
A gold mining firm is not wholly unexpected on the list during a week in which the Federal Reserve raises interest rates, as panicky investors sell mining stocks. In the past, Barrick Gold Corp (USA) (NYSE:ABX) has been the target of choice for heavy Fed-related options activity, but Yamana Gold stole that spot yesterday.
Volume on AUY stock topped 644,000 contracts on Thursday, enough to earn the stock a spot in the top three most active options for the day … and it did so with puts, which accounted for roughly 99% of all of yesterday’s activity. Puts are nothing new to AUY, which has fallen more than 57% since July last year. The stock’s July put/call OI ratio has ballooned to a reading of 3.66, with puts more than tripling calls among near-term options.
In Thursday’s activity, however, we saw what appeared to ether be a roll-down in an existing position or a bull put spread — on a plunging stock. Trade-Alert.com reports that roughly 160,000 puts traded on the July $3 put for the bid price of 54 cents, or $54 per contract. At the same time, 160,000 puts also traded on the July $2.50 put for the ask price of 17 cents, or $17 per contract. The net for this trade was a credit of 37 cents, or $37 per pair of contracts.
I’m not quite sure why you would roll down in the same month, as implieds and the price of the options will rise and fall the same with both the $3 and $2.50 strikes now in the money. Nor does a $2.50/$3 bull put spread make sense, unless you expect AUY to rally back above $3 — in which case, calls would have been the more profitable choice.
Either way, I’ll keep an eye on this one and see if anything else emerges.
As of this writing, Joseph Hargett did not hold a position in any of the aforementioned securities.