U.S. stock futures are mixed this morning, as Wall Street eyes another round of corporate earnings and positive retail data out of the Eurozone. Specifically, Eurozone retail sales rose 3.7% in September year-over-year, topping estimates for a 2.9% gain. Meanwhile, in earnings, Valeant Pharmaceuticals Intl Inc (NYSE:VRX) will be in focus after gaining ground and heavy options activity yesterday.
Heading into the open, Dow Jones Industrial Average futures are up 0.09%, S&P 500 futures have dipped 0.03% and Nasdaq-100 futures are off 0.03%.
On the options front, volume lightened up a bit on Monday, but remained well above October’s daily average. Overall, about 17.2 million calls and 13.4 million puts changed hands on the session. On the CBOE, the single-session equity put/call volume ratio ticked higher to 0.61, but the 10-day moving average slipped to a one-month low of 0.63.
As for Monday’s most active option, Alibaba Group Holding Ltd (NYSE:BABA) attracted heavy call options volume after Oppenheimer boosted its price target on BABA stock. Meanwhile Teva Pharmaceutical Industries Ltd (ADR) (NYSE:TEVA) surged despite a price-target cut at Credit Suisse after reports emerged that billionaire Len Blavatnik was looking to acquire a stake. Finally, Valeant Pharmaceuticals gained an influx of call activity amid earnings speculation and news the company was divesting Sprout Pharmaceuticals.
Alibaba Group Holding Ltd (BABA)
Alibaba posted blowout earnings last week, once again putting Wall Street’s estimates to shame. The brokerage bunch has been playing catch-up ever since, with Oppenheimer joining the bullish chorus on Monday. Analysts at the firm lifted their price target on BABA stock to $220 from $200, noting that the company was “uniquely positioned to benefit from the rise of Chinese middle-class consumption.”
BABA stock rose more than 2.5% on the increase, and options traders continued to scarf down calls as a result. Volume topped 199,000 contracts, with calls accounting for 68% of the day’s take.
Overall, the November put/call open interest ratio has fallen from last week’s pre-earnings perch of 0.63 to today’s reading of 0.51. Calls are clearly being added at a faster rate than puts, indicating that traders are ramping up bullish expectations ahead of Singles Day.
Teva Pharmaceutical Industries Ltd (ADR) (TEVA)
TEVA stock plummeted last week after the company lowered its 2017 outlook due to new competition for Copaxone. Teva looked ready to extend those losses this morning after Credit Suisse cut its price target to $8 from $14 early on Monday. However, reports that billionaire investor Len Blavatnik is looking to acquire up to a $3 billion stake in Teva prompted the shares to sharply reverse course. TEVA finished up nearly 9% on the news.
TEVA options traders, however, didn’t appear to be on board with the rebound. Volume jumped to 159,000 contracts — nearly tripling the stock’s daily average — while puts claimed 59% of the day’s take. TEVA has seen put volume outstrip calls for the past week, driving the November put/call OI ratio higher to a near-term peak at 0.83.
Peak put OI of 15,000 contracts at the $15 strike has been trading solidly in the money since Teva’s quarterly report, though Monday’s bounce back has eaten into returns a bit. As such, continued put activity on the shares may be a sign of short-term profit taking.
Valeant Pharmaceuticals Intl Inc (VRX)
Valeant released third-quarter earnings of $3.69, beating expectations of 91 cents per share this morning, on revenue of $2.22 billion, ahead of expectations of $2.17 billion.
Ahead of the event, Valeant moved to fix a $1 billion mistake by divesting Sprout Pharmaceuticals back to its former owners. The company was unable to capitalize on Addyi, a drug some referred to as “female Viagra.” Instead of languish in weak sales, Valeant ditched Sprout.
The move appeared to engender some hope from VRX traders, as calls made up 63% of the more than 164,000 contracts traded on the stock yesterday.
Currently, the November put/call OI ratio has ballooned to a whopping 3.50, with puts more than tripling calls among front-month options. Valeant hasn’t performed well either fundamentally or technically this year, so pessimism is par for the course. However, this extreme degree of negativity could lead to a bit of a pop following this morning’s quarterly report … assuming Valeant doesn’t have more bad news for investors.
As of this writing, Joseph Hargett did not hold a position in any of the aforementioned securities.
