U.S. stock futures are trending higher this morning, with Wall Street once again looking toward fresh all-time highs. Overextended valuations continue to take a back seat, with traders more focused on the potential for tax reform and a better-than-expected earnings season. On that last note, FactSet data indicates that about 75% of the S&P 500 Index companies that have reported so far have beat expectations.
Heading into the open, futures on the Dow Jones Industrial Average are up 0.15%, S&P 500 futures have added 0.11% and Nasdaq-100 futures have gained 0.2%.
On the options front, volume was extremely brisk amid October options expiration on Friday. In fact, a near-term high of 23.5 million calls and 18.5 million puts crossed the tape to close out the October series. On the CBOE, the single-session equity put/call volume ratio plunged to 0.60, prompting the 10-day moving average to tick lower to 0.66 — down from Thursday’s two-month high.
Taking a closer look at Friday’s options activity, Micron Technology, Inc. (NASDAQ:MU) received a considerable vote of confidence from analysts at UBS, driving call volume higher on the day. Meanwhile Weatherford International Plc (NYSE:WFT) saw volume surge to roughly 28 times its daily average ahead of next week’s earnings report. Finally, General Electric Company (NYSE:GE) got an earnings pass from traders on Friday, with many believing that the worst in now behind the company.
Micron Technology, Inc. (MU)
UBS analysts reiterated their “buy” rating and lifted their price target on MU stock to $53 from $39.50 on Friday, implying 28% upside for the stock. UBS highlighted Micron’s plans to retire $2.25 billion in debt via its recent equity offering. According to the brokerage firm, Micron could be net cash positive by next year.
Options traders cheered the move, but remained somewhat cautious with MU stock still trading near overbought territory. Volume on Friday rose to 313,000 contracts, with calls making up about 59% of the day’s take.
Looking out to November options, we find that the put/call open interest ratio arrives at 0.58, with calls on the verge of doubling puts among front-month options. A continuation of Friday’s trend could push this sentiment reading over the top, even with MU overbought at the moment.
Weatherford International Inc (WFT)
There has been very little news in the financial media regarding oil and gas equipment services firm Weatherford of late. About the only notable development on the horizon is the company’s third-quarter earnings report, slated for release ahead of the open next Wednesday. Analysts are expecting a loss of 24 cents per share on revenue of $1.49 billion, with the whisper number resting at a loss of 26 cents per share.
This lack of news hasn’t stopped options speculators, as volume on Friday rocketed to 273,000 contracts — 2,796% of WFT’s daily average. Puts were the options of choice on Friday, snapping up 64% of the day’s take. A closer look via Trade-Alert.com reveals that most of this activity was contained within two block trades.
This largest block, totaling 167,500 contracts, traded at the bid price of 29 cents on the December $3.50 put. Another block totaling 70,000 contracts traded at the November $3.50 put for 29 cents, between the bid and the ask — though implieds fell on the trade, suggesting the contracts were sold.
With WFT trade just above $3.50, these blocks could be a bet that the shares will hold their ground. Or, if the trader got a deal on the large block trades, we could be looking at a rather large bet that WFT is set to plunge after earnings.
General Electric Company (GE)
Friday morning, GE stock plunged roughly 6.7% following a rather nasty quarterly earnings miss. In fact, earnings per share came in 20 cents below expectations, and GE’s CEO called the performance “unacceptable.”
But analysts and traders alike appeared to give CEO John Flannery a pass in his first quarterly report in charge. Analysts played up strength in the company’s aerospace division and appeared to take Flannery at his word that changes were already underway to address the worst of GE’s issues.
GE ultimately finished Friday up nearly 1%, but options traders were not as easily convinced. Volume climbed to 999,000 contracts, nearly topping the stock’s daily average by six-fold. Puts made up the bulk of Friday’s volume, snapping up 56% of the day’s take.
Looking ahead to November, there is a clear degree of pessimism levied against GE. Specifically, the November put/call OI ratio has ballooned to 1.33, with puts easily outnumbering calls for the series. This pessimism could work to GE’s favor, if Flannery continues to take steps toward turning things around in short-order.
As of this writing, Joseph Hargett did not hold a position in any of the aforementioned securities.
