U.S. stock futures are trading flat to lower this morning, indicating a weak start to the day. Wall Street is taking a breather this morning following a string of solid gains. Sentiment remains bullish, though, bolstered by strong first-quarter corporate earnings.
Heading into the open, Dow Jones Industrial Average futures are down 0.27%, S&P 500 futures have slipped 0.28% and Nasdaq-100 futures are down 0.35%.
Turning to the options pits, volume was well above average on Wednesday. Overall, about 20.7 million calls and 16.8 million puts changed hands on the session. The CBOE single-session equity put/call volume ratio plunged to 0.56, hitting a one-month low. The 10-day moving average ticked lower to 0.64.
Taking a closer look at Wednesday’s options activity, Micron Technology, Inc. (NASDAQ:MU) was call heavy following the stock’s recent rebound. But technical resistance may stand in MU stock’s way.
Meanwhile, International Business Machines (NYSE:IBM) saw call traders rush for the exits following a post-earnings dive. Finally, Alibaba Group Holding Ltd (NYSE:BABA) options traders geared up for next week’s quarterly report.
Micron Technology, Inc. (MU)
I said back on March 16 that Micron stock was vulnerable to a short-term correction due to extreme levels of bullish sentiment. The stock went on to drop nearly 25% as a bump-and-run technical pattern played out. After hitting a low near $48.50, MU stock rebounded sharply, bolstered by a bullish reiteration at Mizuho.
MU stock is now at a key juncture, as the shares look to challenge resistance at $42, a region that formerly provided staunch support. MU stock options traders are betting on a breakout once again. Volume topped 323,000 contracts for MU yesterday. Calls made up a sizeable 67% of that activity.
Looking at May options, its safe to say that bullish sentiment never really died on MU stock. The May put/call open interest ratio comes in at 0.60, with bullish calls nearly doubling bearish puts. What’s more, there are more than 30,000 calls open at both the May $60 and May $70 strikes, indicating high expectations for MU stock.
If you picked up MU near it’s lows, protective puts might not be a bad form of insurance right now.
International Business Machines Corporation (IBM)
IBM posted solid quarterly earnings yesterday morning, but the factors driving those results were not as impressive. Adjusted earnings and revenue topped analysts expectations, but one-time tax benefits were largely responsible for the outperformance.
Revenue growth, while positive for a second-consecutive quarter, remained sluggish. Furthermore, guidance remained flat amid expectations for a revenue boost on AI and cloud growth.
IBM stock options traders remained largely bullish, however. Volume rose to over 184,000 contracts, with calls making up 61% of the day’s take. Traders eschewed the April and May options series in favor of June, where call open interest rose at the $150 through $175 strikes.
Alibaba Group Holding Ltd (BABA)
Chinese ecommerce behemoth Alibaba will release its fiscal fourth-quarter earnings report on Friday, May 4. Analysts are currently expecting a profit of 88 cents per share, up 27% from the same quarter last year. Revenue is expected to rise 52% to $9.27 billion.
BABA stock options traders continued their assault on calls yesterday. Volume jumped to 237,000 contracts, with calls making up 67% of the day’s take. As a result of the recent attention to BABA call options, the weekly May 4 put/call OI ratio has plummeted to a lowly reading of 0.30. In other words, calls more than triple puts among options most affected by BABA’s quarterly report.
May 4 option implieds are pricing in a post-earnings move of about 7% for BABA stock. This places the upper bound at $195.55 and the lower at $169.80.
As of this writing, Joseph Hargett did not hold a position in any of the aforementioned securities.