U.S. stock futures are trading lower this morning, as Wall Street catches its breath following an impressive six straight wins for the S&P 500 Index. In fact, the major market indices closed Tuesday at record all-time highs, and investors will likely take today to sort out those gains and consolidate their holdings.
Meanwhile, economic data on tap for today includes ADP’s private-sector jobs report for September, Markit’s September services purchasing managers’ index and the Institute for Supply Management’s September non-manufacturing index.
Against this backdrop, futures on the Dow Jones Industrial Average are off 0.11%, S&P 500 futures have slipped 0.13% and Nasdaq-100 futures are down 0.2%.
In the options pits, volume was pretty average on Tuesday, with about 14.6 million calls and 11.7 million puts changing hands. On the CBOE, the single-session equity put/call volume ratio rose to 0.66, while the 10-day moving average held at 0.64 for the fifth consecutive session.
Taking a closer look at Tuesday’s volume, Advanced Micro Devices, Inc. (NASDAQ:AMD) saw bullish call option volume spike after the company announced a new graphic processing unit optimized for small, low-power systems. Meanwhile, Tesla Inc (NASDAQ:TSLA) rebounded from early lows after the company widely missed Model 3 production numbers for September. Finally, Cisco Systems, Inc. (NASDAQ:CSCO) saw volume more than quadruple the average ahead of today’s ex-dividend date.
Advanced Micro Devices, Inc. (AMD)
AMD was a hot topic on Wall Street once again yesterday. The company unveiled a new GPU designed for small, low-power systems. The new chipset is designed for use in systems like casino games, medical displays and retail signage.
In other AMD news, short interest hit an all-time high for AMD in the most recent reporting period. According to S3 Partners, AMD shorts now total 158 million shares, or 18% of the stock’s total float, up about 83% since the start of the year.
Despite AMD’s lackluster price action over the past several weeks, the stock has seen an influx of call option activity. While yesterday’s activity was likely speculators chasing AMD’s 5.6% rally, the stock’s October put/call open interest ratio has still steadily fallen to a reading of 0.81 from August readings north of 1.
With yesterday’s short-interest news, we now have a likely culprit for rising call volume in the face of stagnant price action: hedging short sellers.
Tesla Inc (TSLA)
Tesla stock plunged sharply on the open yesterday morning following poor September production numbers for the Model 3. Tesla projected production of 1,000 to 1,5000 units, but delivered just 220 Model 3s. But analysts and investors were quick to defend the company, accepting Tesla’s “production bottlenecks” reasoning behind the shortfall.
Furthermore, analysts at Nomura initiated TSLA stock with a “buy” rating and a $500 price target this morning. According to Nomura, Tesla will see “an unprecedented run-up in revenue” to $58 billion in 2021 due to its “insurmountable lead in vehicle range per dollar,” and “a largely inferior competitive field.”
TSLA options traders were obviously mixed on the stock yesterday. Volume topped 224,000 contracts, with calls only grabbing 53% of the day’s take. That said, pessimism is nothing new for TSLA stock, as its October put/call OI ratio currently rests at 0.94, just shy of parity.
If TSLA stock wasn’t already down 10% from its September highs, this lack of a negative reaction to obviously bearish news would much more serious sentiment consequences.
Cisco Systems, Inc. (CSCO)
CSCO stock was inundated with a flood of call option volume on Tuesday. So much so that the only real culprit for the volume is the fact that CSCO trades ex-dividend today. Shareholders of record as of the close yesterday are eligible for a cash dividend of 29 cents per share payable on October 25.
The effect on CSCO’s options pits was blatant, with calls gobbling up 93% of the more than 173,000 contracts traded. Volume also came in at more than four-times Cisco’s daily average, with all activity likely geared toward dividend capture strategies.
Still, there could have been some bullish speculators mixed in with yesterday’s dividend-capture plays, as CSCO stock is up more than 11% from its August bottom. The shares are now challenging resistance near $34, though today’s ex-div action likely won’t help the stock breach that level.
As of this writing, Joseph Hargett did not hold a position in any of the aforementioned securities.
