U.S. stock futures are in rally mode this morning, pointing toward a positive open. Strong quarterly earnings and easing trade tensions with China are helping improve the mood.
Specifically, China said this morning that it will phase out rules requiring foreign auto makers to share factory ownership and profits with Chinese companies by 2022.
On the economic front, March housing starts and building permits will arrive alongside March industrial production and capacity utilization ahead of the open.
Against this backdrop, Dow Jones Industrial Average futures are up 0.72%, S&P 500 futures have added 0.46% and Nasdaq-100 futures are up 0.45%.
Turning to the options pits, volume retreated sharply once again. Only about 15.6 million calls and 14.3 million puts changed hands on the session. The CBOE single-session equity put/call volume ratio dipped to 0.64. The 10-day moving average also fell to 0.64, hitting a one-month low.
Amid Monday’s light options activity, AT&T Inc. (NYSE:T) call option volume picked up ahead of next week’s quarterly earnings report. Visa Inc. (NYSE:V) was also the subject of heavy pre-earnings call volume. Finally, Netflix, Inc. (NASDAQ:NFLX) options traders are wishing they were more bullish this morning after last night’s impressive quarterly report.
AT&T Inc. (T)
AT&T continues to clash with the U.S. Justice Department over its proposed acquisition of Time Warner Inc. (NYSE:TWX). Amid that battle, T options traders are preparing for next week’s quarterly earnings report. Currently, Wall Street is looking for an 18% jump in earnings to 88 cents per share and a 0.2% drop in revenue to $39.29 billion.
Options activity on Monday indicated that optimism may be on the rise heading into the report. Volume jumped to 145,000 contracts, with calls making up 60% of the day’s take. What’s more, the weekly April 27 put/call open interest ratio rests at 0.41. This reading indicates that calls more than double puts among those options most affected by T’s earnings.
Weekly April 27 implieds are pricing in a potential 4% move post earnings. This puts the upper rail near $37 and the lower near $34 for a post-earnings move for T stock.
Visa Inc. (V)
Visa stock also saw heavy speculation ahead of next week’s quarterly report. Volume surged to 139,000 contracts, or more than four times Visa’s daily average volume. Calls gobbled up 73% of the day’s take.
As for earnings, Wall Street anticipates earnings growth of 18.6% to $1.02 per share. Revenue is expected to rise 7.3% year-over-year to $4.8 billion. EarningsWhispers.com puts the whisper number at earnings of $1.04 per share.
Weekly April 27 implieds are pricing in a move of about 3.9% for Visa stock following earnings. This puts the upper bound at $128.25 and the lower bound near $118.58. That said, OI is quite low in the weekly April 27 series, lessening the sentiment impact and creating liquidity issues.
Netflix, Inc. (NFLX)
After the close last night, Netflix released the results of another stellar quarter. The company reported a 43% year-over-year increase in streaming revenue while adding 7.3 million subscribers on the quarter. Analysts were anticipating only 6.6 million subscriber adds. The report prompted a parade of bullish analyst commentary, including a price target increase to $370 from $350 from Morgan Stanley.
NFLX stock is up nearly 7% so far this morning, meaning that readers who took my advice on Thursday last week are looking at a gain of roughly 100% on an April $320/$325 bull call spread.
As for yesterday’s options traders, trepidation held many in check. Volume leapt to 261,000 contracts, nearly doubling NFLX’s daily average. Calls, however, only made up 55% of the day’s take. That caution is prevalent in the May options series, where NFLX’s put/call OI ratio rests at 0.75. Look for this reading to trend lower in the wake of last night’s impressive report.
As of this writing, Joseph Hargett did not hold a position in any of the aforementioned securities.