U.S. stock futures are headed lower this morning. Wall Street is dealing with another wave of uncertainty following the Italian elections and President Donald Trump’s aluminum and steel tariffs. Trump’s 25% steel and 10% aluminum tariffs have raised concerns over a potential trade war, while Italy’s elections ended without a clear winner.
Heading into the open, Dow Jones Industrial Average futures have shed 0.26%, S&P 500 futures are down 0.30% and Nasdaq-100 futures have lost 0.08%.
Turning to the options pits, volume came roaring back heading into the weekend. Puts were the most popular, as about 20.5 million calls and 22.1 million puts changed hands on the session. The CBOE single-session equity put/call volume ratio jumped to 0.71. The 10-day moving average ticked higher to 0.63.
Taking a closer look at Friday’s options activity, Netflix, Inc. (NASDAQ:NFLX) drew heavy speculation ahead of this weekend’s Oscars awards. Meanwhile, both Advanced Micro Devices, Inc. (NASDAQ:AMD) and Bank of America Corp (NYSE:BAC) attracted unusually specific and heavy options volume.
Netflix, Inc. (NFLX)
Netflix was a winner once again at the annual Oscars award ceremony. Nominated for two categories, Netflix came away with a win for best documentary feature for Icarus, a film about doping. The win has added more buying fuel for NFLX stock, as the shares look to extend their gains into all-time high territory north of $300.
Options traders were mixed heading into the weekend. Volume came in at 261,000 contracts, or about 1.7 times Netflix’s daily average. Calls snapped up only about 55% of the day’s take.
Looking out to April, we find a similar sentiment backdrop for Netflix stock. The April put/call open interest ratio rests at an elevated reading of 0.88. With puts just shy of calls in popularity, options traders may be betting on a consolidation or retreat for NFLX heading into Spring.
Advanced Micro Devices, Inc. (AMD)
Advanced Micro Devices stock suffered a reversal at the end of February that sent many investors scrambling for the exits. After rebounding from it’s February lows, AMD stock met with staunch resistance near $13. The shares reversed hard, crashing below both their 50- and 200-day moving averages by the end of the week.
The bearish momentum carried over into AMD’s options pits. On Friday, volume jumped to 403,000 contracts, or more than double Advanced Micro’s daily average. Puts claimed an impressive 80% of the day’s take, as traders speculated on where AMD’s decline would end.
Trade-Alert.com data reveals that traders loaded up on the April $10, $11 and $12 strike puts. More specifically, 100,000 of the April $10 puts were bought for 38 cents, or $38 per contracts. Another block of April $11 puts were sold for 71 cents, or $71 per contract, while 50,000 April $12 puts were sold for $1.18, or $118 per contract.
The trader’s intent isn’t quite clear with this limited data. On the surface, it appears to be a play on technical support near $11, with the potential to sell partial AMD holdings on a drop below $12. The purchased April $10 could be a hedge against a sharp decline in AMD stock.
Bank of America Corp (BAC)
While we’re on the topic of unusual options plays, Bank of America was the subject of a rather interesting strategy on Friday. Overall, BAC stock attracted 561,000 contracts at the end of last week. Calls made up 70% of the day’s take, coming in at 1.4 times BofA’s daily average.
The interesting part of Friday’s activity was an April $31 straddle position. A straddle trade hinges on volatility, allowing the trader to benefit from a sharp move in the underlying stock, regardless of direction.
According to Trade-Alert.com, 11,500 contracts traded on both BAC’s April $31 put and call simultaneously at the ask prices. The trades were marked “spread,” with the cost of the spread coming in at $2.40, or $240 per pair of contracts.
In order for the BAC straddle trader to break even on the trade, BofA stock needs to rally to $33.40 or fall to $28.60.
Techncially, BAC is at a key breaking point. The shares are staring up at resistance at $32, while perched on support near $31. BAC’s 50-day moving average is also in the $31 region. A breach of either of these levels could elicit a sharp move in BAC stock going forward.
The worst case scenario for this BAC straddle trader is for the stock to stagnate between support and resistance through April expiration.
As of this writing, Joseph Hargett held no positions in any of the aforementioned securities.
