U.S. stock futures are pushing higher heading into the open, shaking off early weakness. The Federal Reserve remains the focal point for Wall Street, as yesterday’s minutes hinted at an “increased likelihood” of more interest rate hikes this year. Prospects for a March rate hike are now much improved.
Weighing on stocks, the Fed news pushed the yield on the 10-year Treasury bond to a four-year high north of 2.94% and bolstered the U.S. dollar.
At last check, Dow Jones Industrial Average futures were up 0.21% and S&P 500 futures were higher by 0.39% and Nasdaq-100 futures had gained 0.45%.
Turning to the options pits, volume remained below average on Wednesday. About 17.9 million calls and 15.5 million puts changed hands on the session. The CBOE single-session equity put/call volume ratio retreated to 0.58. The 10-day moving average extended its decline to 0.67.
Taking a closer look at yesterday’s options activity, Facebook Inc (NASDAQ:FB) speculative traders focused on calls despite a report that some exclusive advertisers were flirting with Twitter Inc (NYSE:TWTR) and Snap Inc (NYSE:SNAP).
Elsewhere, Alibaba Group Holding Ltd (NYSE:BABA) options ramped up as the stock neared potential technical resistance near $190. Finally, General Electric Company (NYSE:GE) backed its full-year outlook, but said that earnings would track near the low end of guidance.
Facebook Inc (FB)
The first signs that Facebook’s News Feed redesign could have an impact on revenue emerged yesterday. GBH Insights estimates that 15% to 20% of companies that previously advertised only on Facebook are now “experimenting” with both Twitter and Snap. Facebook’s ad revenue appears safe for now, says GBH, but the research firm is worried about the News Feed’s impact on monthly average users.
FB stock options traders didn’t appear to take notice of the report yesterday. Volume came in at 300,000 contracts, with calls accounting for an above average 67% of the day’s take. What’s more, Facebook’s March put/call open interest ratio has fallen from 1.16 a week ago to today’s reading of 1.09.
A rising put/call OI ratio indicates that FB options traders are adding calls at a faster rate than puts — a sign of shifting bullish sentiment on the stock.
Alibaba Group Holding Ltd (BABA)
Alibaba stock is facing a bit of a short-term bearish technical pattern. The stock surged north of $200 last month, only to plunge back to support near $170 during the market correction. BABA stock is now faced with formerly staunch resistance at $190, and it’s making some options traders question whether the rally can resume.
Volume on Wednesday rose to 237,000 contracts, a bit below Alibaba’s daily average. Calls accounted for 64% of the activity. Buried within yesterday’s volume was what appears to be a synthetic short on BABA stock. A synthetic short is when you use an options spread to replicate shorting the underlying stock, without actually needing to borrow the shares.
In this case, Trade-Alert.com data shows that a trader sold 18,000 April $190 calls for $10.60 and simultaneously bought 18,000 April $190 puts for $8.07. The result is a credit of $2.53. In this situation, the trader loses out big if BABA stock rallies north of $190, while significant gains are had if Alibaba shares fall.
General Electric Company (GE)
Financial operations are under pressure, said GE Chief Financial Officer Jamie Miller said at the Barclays Industrial Select Conference yesterday. The news follows in the wake of GE’s surprise charges against its insurance portfolio last month.
However, Miller said that GE is still on track to hit its full-year guidance of $1.00 to $1.07 per share, though earnings will probably track toward the low end. Analysts are currently expecting full-year earnings of just 97 cents per share.
GE stock options traders appeared bolstered by the news. Volume came in at 215,000 contracts, with calls making up 69% of the day’s take. In particular, one trader snapped up a block of 20,000 September $16 calls for the ask price of 74 cents yesterday, according to Trade-Alert.com.
Short-term sentiment in the options pits remains cautious, however. The March put/call OI ratio for GE stock comes in at 0.86. While this ratio has come down in the past week, it still remains near the upper end of all such readings taken in the past year.
As of this writing, Joseph Hargett was long General Electric (GE) stock.