Wednesday’s Vital Data: Alibaba Group Holding Ltd (BABA), Netflix, Inc. (NFLX) and Advanced Micro Devices, Inc. (AMD)

U.S. stock futures are headed higher this morning, as the bull rally finally returns from the holiday break. The Dow Jones Industrial Average is set to test record high territory, as Wall Street awaits the latest Fed minutes.

Traders are anxiously awaiting any clues on the number of interest rate hikes the Federal Reserve has planned for 2018. Also on the economic docket today are ISM manufacturing data for December, construction spending for November and monthly car sales data.

Heading into the open, Dow futures are up 0.15%, S&P 500 futures are up 0.11% and Nasdaq-100 futures have added 0.12%.

Turning to the options pits, Tuesday’s volume appeared to have finally returned to normal. Overall, about 17.5 million calls and 12.5 million puts changed hands. The CBOE single-session equity put/call volume ratio plummeted to 0.47 — it’s lowest reading since July 10, 2015. The 10-day moving average ticked lower to 0.56.

Taking a closer look at Tuesday’s options activity, Alibaba Group Holdings Ltd (NYSE:BABA) drew heavy call volume despite the failure of the Ant Financial Services and MoneyGram International Inc. (NYSE:MGI) merger.

Elsewhere, Netflix, Inc. (NASDAQ:NFLX) saw heavy call volume in the wake of bullish analyst commentary and Advanced Micro Devices, Inc. (NASDAQ:AMD) was bolstered by analyst commentary and an industry report on strong semiconductor sales in November.

Alibaba Group Holdings Ltd (BABA)

With the Chinese economy posting the fastest growth on the planet, Alibaba doesn’t really need access to the U.S. market … but it would help immensely. The company’s latest attempt to break into the U.S. was thwarted by the U.S. government yesterday.

Ant Financial Services, an affiliate of Alibaba, called off its merger with MoneyGram after it became clear that the U.S. Committee on Foreign Investment wouldn’t approve the deal. Ant Financial had offered to pay $18 per share for MGI — about $1.2 billion — back in January 2017.

BABA options traders took the news in stride, choosing instead to focus on strong economic data coming out of China. Volume topped 349,000 contracts, about 1.7 times BABA’s daily average. Calls made up 69% of the day’s take.

While call volume has been on the rise, there is still more than a little caution in the BABA options pits. For instance, the January 2018 put/call open interest ratio currently rests at 0.97, with puts in near parity with calls. Look for this lingering bearish sentiment to evaporate as BABA strengthens heading into 2018.

Netflix, Inc. (NFLX)

NFLX stock received not one, but two bullish notes yesterday. Loop Capital Markets labeled Netflix its “best idea of 2018” and lifted its price target to $241 from $237. Meanwhile, Macquarie Research upgraded NFLX to “outperform” from “neutral” and raised its target to $220 from $200.

“While last year’s subscriber growth was notable, we expect to see true operating leverage out of Netflix this year, and we believe the company is poised to deliver that at a level well beyond what we witnessed in 2017,” Loop Capital analysts said in a note.

NFLX jumped 4.75% on the news, reclaiming the $200 level in the process. Call traders responded by claiming 59% of the more than 174,000 contracts traded on NFLX yesterday. Volume came in at about 1.7 times NFLX daily average.

Like BABA, negativity is still an issue for NFLX stock. The January 2018 put/call OI ratio rests at a lofty reading of 1.43, as put traders continue to bet on a decline in the shares. Peak put OI currently rests at the deep out-of-the-money $125 strike, and likely represents put sell activity. However, the at-the-money January $200 strike is the second most popular put, and clearly represents bearish bets on NFLX stock.

Advanced Micro Devices, Inc. (AMD)

Bank of America Merrill Lynch named AMD one of its top ten picks for the first quarter of 2018 yesterday. The endorsement came on the heels of an industry report from the Semiconductor Industry Association (SIA) which said that November chip sales rose 21.5% to $37.7 billion.

“The global semiconductor industry reached another key milestone in November, notching its highest-ever monthly sales, and appears poised to reach $400 billion in annual sales for the first time,” the SIA said in a statement.

AMD stock surged nearly 7% on the day and is up another 6.74% in premarket activity this morning. AMD options traders responded with enthusiasm, sending more than 134,000 contracts across the tape. Calls gobbled up 72% of the day’s take.

The bulls are already in firm control of AMD’s January 2018 options series. Currently, the front-month put/call OI ratio arrives at 0.53, with calls nearly doubling puts for the series. The $12 strike is currently the most popular, with more than 234,000 contracts in residence. AMD is looking to topple that level in today’s trading.

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

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