Thursday’s Vital Data: Union Pacific Corporation (UNP), International Business Machines Corp. (IBM) and Netflix, Inc. (NFLX)

Advertisement

U.S. stock futures are trading sharply lower this morning on the 30 year anniversary of the Black Monday stock market crash. This auspicious anniversary also arrives on the heels of the Dow Jones Industrial Average topping the much vaunted 23,000 level. Tech is leading the way lower this morning, with many FAANG stocks down by more than 1% in premarket action.

stock market todaySpecifically, futures on the Dow have fallen 0.37%, with S&P 500 futures down 0.39% and Nasdaq-100 futures plunging 0.58%.

On the options front, volume was brisk on Wednesday, with about 16.8 million calls and 13.1 million puts changing hands on the session. On the CBOE, the single-session equity put/call volume ratio rose to 0.72, while the 10-day moving average ticked higher to 0.67 — a two month high.

As you can see from the chart below, Wednesday’s options activity was elevated across the board. However, call activity on Union Pacific Corporation (NYSE:UNP) was simply ridiculous, arriving at 8,500% of UNP’s daily average as traders eyed CSX Corporation’s (NYSE:CSX) earnings ahead of Union Pacific’s report next week.

Elsewhere, International Business Machines Corp. (NYSE:IBM) also saw option volume spike in the quadruple digits percentage wise, with IBM bulls chasing yesterday’s nearly 9% rally. Finally, Netflix, Inc.’s (NASDAQ:NFLX) nearly two-fold jump in daily activity looks rather tame in comparison, with traders possibly reacting to Nielsen N.V.’s (NYSE:NLSN) promise to provide viewership data from the streaming giant.

Thursday’s Vital Options Data: Union Pacific Corporation (UNP), International Business Machines Corp. (IBM) and Netflix, Inc. (NFLX)

Union Pacific Corporation (UNP)

With an 8,500% spike in volume, and calls making up nearly 100% of yesterday’s activity, you would immediately suspect that Union Pacific was on the verge of an ex-dividend date. But, according to the company’s investor relations page, and the company’s dividend history, that doesn’t appear to be the case.

The only real data that might have prompted Wednesday’s surge in UNP call options is that competitor CSX rose roughly 2% following its quarterly earnings report. Driving CSX’s gain was a boom in coal shipping revenue, and investors may be expecting similar or better results from UNP next Thursday when it releases its quarterly report.

However, a closer look at UNP’s options activity via Trade-Alert.com reveals that Wednesday’s action was largely comprised of four blocks of 137,500 contracts in January 2018 and March series at the deep out-of-the-money $130 and $150 call strikes. All but one of these blocks, the March $130 call, were sold.

Unless this was an institutional trader that got a deal by buying in bulk, this wealth of overhead call activity is far less bullish than it initially appeared.

International Business Machines Corp. (IBM)

IBM shares rocketed higher after the company blew past Wall Street’s third-quarter earnings expectations. As I noted yesterday morning, most traders were caught off guard by the beat, with even options traders wishy-washy on IBM ahead of the event.

What IBM bulls there were in the front-month October series hit the exits yesterday, prompting a sharp spike in volume to 286,000 contracts (63% call options). IBM’s October put/call open interest ratio surged alongside the stock, rising from yesterday’s reading of 1.08 to today’s perch at 1.27 as call traders liquidated their now winning positions.

Quite a few of those liquidations came from the October $155 call strike, where OI plunged from more than 10,800 contracts on Tuesday to about 9,080 contracts today. Hopefully the 9,800 calls at the October $160 strike were sold, as IBM appears to have run out of juice amid the broad market selloff this morning.

Netflix, Inc. (NFLX)

FAANG stocks are selling off again this morning, and it’s raising my “market correction” hackles like it did back on Sept. 25. This morning’s weakness aside, Netflix was already retreating after dropping nearly 2% yesterday. Profit taking was the most likely culprit, with NFLX topping $200 for the first time ever.

However, there could also have been some trepidation after Nielsen announced it is adding a service to track viewership on Netflix’s streaming platform. Netflix has historically kept this data under tight wraps, likely to prevent trouble in content negotiation contracts with providers. In response to the news, Netflix fired back, stating the Nielsen’s data is not accurate and does not include overseas or mobile streaming figures — both of which make up a considerable chunk of Netflix viewers.

Regardless of the reason, option volume rose to 249,000 contracts on NFLX stock yesterday, with calls making up 71% of the day’s take. Surprisingly, however, much of this week’s activity appears to have been call ads in the October series (which expires tomorrow). In fact, the October put/call OI ratio has fallen from its Monday reading of 1.08 to today’s perch at 1.00 even.

Given NFLX’s selloff yesterday and (likely) today, one hopes these were sold out-of-the-money calls unless traders are expecting a rally on Friday heading into the weekend.

As of this writing, Joseph Hargett did not hold a position in any of the aforementioned securities.


Article printed from InvestorPlace Media, https://investorplace.com/2017/10/thursday-vital-data-union-pacific-corporation-unp-international-business-machines-corp-ibm-netflix-inc-nflx/.

©2024 InvestorPlace Media, LLC