Can the Dow Jones Industrial Average make it five wins in a row? U.S. stock futures are pointing that direction this morning, as stocks continue a broad rebound from last week’s selloff. Cisco Systems, Inc. (NASDAQ:CSCO) is doing it’s part, rallying near 7% premarket on strong earnings.
Heading into the open, Dow Jones futures are up 0.74%, S&P 500 futures have added 0.44% and Nasdaq-100 futures are higher by 0.49%.
Turning to the options pits, calls are once again back in control after a week-long absence. Overall, about 24.9 million calls and 19.8 million puts changed hands yesterday. The CBOE single-session equity put/call volume ratio fell to a one-week low of 0.59. The 10-day moving average, however, held at a six-month high of 0.71.
Taking a closer look at yesterday’s options activity, Facebook Inc (NASDAQ:FB) call volume surged in the wake of a bullish research note from MKM Partners. Elsewhere, both Cisco Systems and Applied Materials, Inc. (NASDAQ:AMAT) drew heavy call volume ahead of their quarterly earnings reports.
Facebook Inc. (FB)
Facebook stock is at its lowest valuation since its initial public offering, MKM Partners said yesterday. The ratings firm reiterated FB stock with a “buy” rating and a $240 price target while lifting its earnings estimates. MKM dismissed recent “engagement” and revenue slowdown concerns, noting that investors have been expecting just such a development for some time.
Facebook stock options traders were bolstered by the bullish news. Volume on FB rose to 416,000 contracts, with calls claiming an outsized 70% of the day’s take. Looking out to March options, however, there is still quite a bit of negativity to work off.
Currently, the March put/call open interest ratio comes in at 1.16, a near-term high for Facebook. This reading is also up sharply from February’s reading of 0.75. Facebook stock has a showdown with $180 today that could help solidify the recent bullish rise in the shares.
Cisco Systems, Inc. (CSCO)
Cisco Systems stock is in rally mode this morning. The shares are up more than 7.5% premarket as traders cheer the company’s stronger-than-expected quarterly report. Cisco also lifted third-quarter guidance, boosted its quarterly dividend by 14% and increased its buyback program by $25 billion.
Cisco stock options traders prepared well for this bullish outcome. Volume surged to 223,000 contracts, or more than triple CSCO’s daily average. Calls gobbled up 72% of the day’s take.
There is also bullish positioning taking place in the March options series. Currently, the March put/call OI ratio arrives at 0.58, with calls nearly doubling puts for the series. Following last night’s report, I would expect this ratio to fall further as call traders anticipate a continued rise in Cisco stock.
Applied Materials, Inc. (AMAT)
Applied Materials was also a winner in the earnings confessional last night. The company reported a profit of $1.06 per share, beating the Street’s view by 3 cents per share. Revenue came in at $4.2 billion, also topping the consensus for $4.11 billion.
Applied Materials also doubled its quarterly dividend to 20 cents per share and increased its stock buyback plan. The company now sees second-quarter earnings of $1.10 to $1.18 per share, up about 44% year-over-year.
Applied Materials stock is up only slightly this morning, after gaining nearly 5% yesterday. Options traders were overwhelmingly bullish on Wednesday. Volume topped 156,000 contracts, more than tripling AMAT’s daily average. Calls made up a whopping 77% of the day’s take.
Looking out to March options, the put/call OI ratio arrives at a lowly 0.23. In other words, calls nearly quintuple puts for the series. That’s some serious optimism from options traders, especially when you consider that only about 1% of AMAT’s float is sold short. Since short sellers have practically no positions to cover, nearly all of these calls are likely bullish bets on AMAT rallying higher.
As of this writing, Joseph Hargett did not hold a position in any of the aforementioned securities.