U.S. stock futures are in a tailspin this morning. The Dow Jones Industrial Average is headed toward a 500-point plunge on the open, as traders react to new Chinese tariffs.
China returned fire today in the escalating trade war with President Donald Trump, slapping a 25% tariff on 106 American products. Among those products are soybeans, airplanes and automobiles.
Against this backdrop, Dow futures are down 2.01%, S&P 500 futures have fallen 1.46% and Nasdaq-100 futures have dropped 1.76%.
Turning to the options pits, volume was anemic on Tuesday. Only about 14.2 million calls and 13.5 million puts changed hands on Tuesday. The CBOE single-session equity put/call volume ratio fell to 0.65. The 10-day moving average ticked higher to 0.69, another one-month high.
Taking a closer look at Tuesday’s options activity, Tesla Inc (NASDAQ:TSLA) puts gained momentum despite reports of production increases. What’s more, TSLA puts should gain more momentum today after China’s tariffs on U.S. auto imports.
Elsewhere, Apple Inc. (NASDAQ:AAPL) is reportedly moving away from Intel Corporation (NASDAQ:INTC) chips. The move left AAPL options traders divided. Finally, Monsanto Company (NYSE:MON) was flooded with put options heading into tomorrow’s quarterly earnings report.
Tesla Inc. (TSLA)
Tesla reported yesterday that it now produces roughly 2,020 Model 3’s per week. For the first quarter, Tesla churned out more than 9,800 Model 3’s, less than half of the expected 20,000 vehicles. Still, investors took the news positively as TSLA stock rose nearly 6%.
Tesla stock options traders weren’t as convinced. Volume topped 252,000 contracts and was dominated by puts, which claimed 54% of the day’s take. That said, many of these puts may have been sold to close as the April put/call open interest ratio has dropped this week from a reading north of 1.20 to its current perch at 1.17.
Tesla bears may regret taking profits early today, though. The new Chinese tariffs target U.S. auto imports, and Tesla doesn’t have a production facility in China — unlike Ford Motor Company (NYSE:F) and General Motors Company (NYSE:GM).
Apple Inc. (AAPL)
According to reports, Apple is moving CPU production in house. The Mac maker is ditching Intel chips in the process, a move that analysts estimate could save Apple $500 million a year. The news had a negligible impact on AAPL stock, which closed fractionally higher yesterday.
Apple stock options activity was also muted. Volume only rose to 403,000 contracts, well below AAPL’s daily average. Calls made up a lackluster 52% of the day’s take, well short of the average of 63%.
What’s more, Apple’s April put/call OI ratio has risen steadily this week. This ratio now rests at 0.79, with puts verging on parity with AAPL calls. Short-term Apple options traders have only been more bearish on the stock roughly 10% of the time in the past year.
Monsanto Company (MON)
Speaking of bearish reactions, Monsanto Company was inundated with put activity yesterday. Volume hit 138,000 contracts, nearly all of which (95%) were comprised of puts.
Digging through data from Trade-Alert.com reveals that most of these puts were initiated by one trader. Two blocks totaling more than 124,000 contracts traded at MON’s April $128 strike put for the ask price of about $12. The $128 strike put is already roughly 11 points in the money, but the trader would need MON to plunge to about $105 just to breakeven on the trade.
The driver for this trade? Monsanto reports earnings ahead of the open tomorrow morning. Analysts are expecting a profit of $3.38 per share, while the whisper number comes in at $3.31 per share. An earnings miss in the current broad-market sentiment backdrop could see MON stock testing support near $100 in short order.
As of this writing, Joseph Hargett held no positions on any of the aforementioned securities.
