U.S. stock futures are broadly lower this morning. In fact, the major market indices are headed toward their worst weekly losses (1.6% on average) in over a year.
Traders appear nervous ahead of today’s January employment report, especially after the Fed indicated a rate hike in March. Economists believe the U.S. added 185,000 jobs in January, with an unemployment rate of 4.1%.
Against this backdrop, Dow Jones Industrial Average futures have plunged 0.94%, S&P 500 futures are down 0.62% and Nasdaq-100 futures have lost 0.29%.
Turning to the options pits, volume was below average on Thursday. Overall, about 19.9 million calls and 16.2 million puts changed hands on the session. The CBOE single-session equity put/call volume ratio came in at 0.59. The 10-day moving average jumped to a two week high of 0.56.
Taking a closer look at yesterday’s options activity, Alibaba Group Holding Ltd (NYSE:BABA) call traders were active after the company missed earnings expectations and took a 33% stake in Ant Financial. Meanwhile, Amazon.com, Inc. (NASDAQ:AMZN) options were mixed ahead of blowout fourth-quarter earnings. Finally, analysts gushed over Microsoft Corporation (NASDAQ:MSFT) after the company once again beat quarterly expectations.
Alibaba Group Holding Ltd (BABA)
Alibaba’s quarterly earnings report didn’t go quite as Wall Street had expected. The company posted a profit of $1.63 per share on revenue of $12.76 billion. Analysts were looking for $1.65 per share on $12.13 billion in sales. BABA stock could have been dinged on the earnings miss, but traders were more spooked by Alibaba’s changing relationship with Ant Financial.
Specifically, Alibaba traded in its current agreement to receive 37.5% of pretax profits from Ant in exchange for 33% ownership of the company. Alibaba is also giving Ant intellectual property rights directly related to Ant’s business as part of the deal. Analysts believe this move is in anticipation of an Ant IPO within the next year, but Ant hasn’t signaled any intention to do so just yet.
Options traders appeared optimistic about the deal, however. Alibaba stock option volume rose to over 594,000 contracts, with calls making up 72% of the day’s take. This may have been profit taking by speculators, though, as BABA’s February put/call open interest ratio of 0.82 continues to lean bearish following yesterday’s call activity.
BABA stock is pulling back to key support at $190 this morning amid a broader market sell off.
Amazon.com, Inc. (AMZN)
Amazon stock is among the few trading positive heading into the open this morning. The company posted blowout quarterly earnings, with quarterly profit nearing $2 billion. Earnings came in at $3.75 per share, blowing past expectations for $1.88 per share. The results included a one-time benefit of $789 million from tax-reform legislation.
Revenue rose to $60.45 billion, also topping Wall Street’s target of $59.75 billion. Amazon Web Services was, again, a standout, with sales soaring 44% to $5.11 billion.
Amazon stock options traders were caught off guard ahead of the report. Volume on Thursday came in at over 186,000 contracts, with calls only making up 56% of the day’s take. Furthermore, the February put/call OI ratio arrives at 1.22, with puts more than doubling calls among near-term options.
Look for this negativity to fade among AMZN options traders, as the stock heads back to all-time high territory.
Microsoft Corporation (MSFT)
Microsoft also posted strong quarterly results, but the shares are struggling premarket after hitting an all-time high early yesterday. Following the results, Microsoft stock received price-target increases from no less than 19 of the roughly 40 analysts following the shares. According to FactSet data, MSFT’s consensus price target now rests at $103.07, compared to $99 ahead of earnings.
Microsoft stock options traders were call heavy following the report. Volume topped out at near 367,000 contracts, with calls making up 67% of the day’s take.
Unfortunately, MSFT only briefly traded above $96 yesterday before retreating amid broader market selling pressure. Unless they were nimble and set limit orders ahead of time, traders who got into the Feb $95/$96 bull call spread I recommended on Wednesday might have to wait a bit longer for a profit.
As of this writing, Joseph Hargett did not hold a position in any of the aforementioned securities.
