U.S. stock futures are battling higher this morning. Wall Street faces some stiff headwinds, but sentiment remains largely positive.
U.S.-China trade talks continue today, but President Trump called Beijing “very spoiled” and lowered hopes for negotiations. Meanwhile, both the 10-year and 30-year Treasury notes are hovering near multi-year highs, putting additional pressure on stocks.
Against this volatile backdrop, futures on the Dow Jones Industrial Average are down 0.03%. S&P 500 futures have lost 0.19% and Nasdaq-100 futures have dropped 0.42%.
In options activity, volume came in strong on Thursday. About 21.3 million calls and 15.4 million puts changed hands on the session. On the CBOE, the single-session equity put/call volume ratio bounced to 0.57.
However, the 10-day moving average dropped to 0.57, it’s lowest reading since the end of January which was take right before the February selloff.
Options traders keyed off technical resistance levels yesterday. For instance, Micron Technology, Inc. (NASDAQ:MU) attracted attention after MU stock was unable to hold above $55. Bank of America Corp (NYSE:BAC) saw similar activity when BAC tested and failed to overtake $31.
On the other hand, Tesla Inc (NASDAQ:TSLA) options volume was considerably mixed following a Goldman Sachs report that the company could need to raise $10 billion in capital through 2020.
Let’s take a closer look:
Micron Technology, Inc. (MU)
MU stock has been on a tear higher in the past two weeks, gaining nearly 12%. That rally should have been juiced by a pair of bullish notes this week. On Tuesday, Stifel raised its price target to $101 from $95. Then, on Wednesday, RBC Capital initiated coverage on MU stock at “outperform” and an $80 price target.
It wasn’t enough to keep buyers interested, as MU stock is retreating after peaking just north of $55 this week. In what appears to be another round of profit taking, MU options traders responded with a flood of call contracts.
Volume yesterday rose to 460,000 contracts, with calls accounting for 67% of the day’s take. However, the June put/call open interest ratio has risen despite this added call volume. Coming in at 0.55 on Wednesday, this ratio now rests at 0.57.
In the meantime, calls continued to be a favorite target for MU traders. This means that puts have not suddenly become more popular, but that call traders are closing out positions and taking profits. It’s more of the same “sell on the news” activity we have seen so far this year.
Bank of America Corp (BAC)
Higher interest rates should be good for Bank of America. It was a talking point the major financial publications pushed all last year. Now that rates are at multi-year highs, BAC stock is faltering. In fact, BAC never really recovered from the March correction, and the shares continue to be plagued by resistance near $31-$31.50.
Yesterday, BAC attempted once again to challenge technical resistance in this area, but a breakout was not to be. Today, BAC stock will test support at it’s 50-day moving average in what could be a significant indicator for the shares going forward.
BAC options traders responded to the rejection at $31 with call volume. These typically bullish bets made up 62% of the nearly 378,000 contracts traded on BofA yesterday. But like MU, BAC saw it’s June put/call OI ratio rise from 0.87 to 0.89 overnight.
If BAC is unable to hold support at its 50-day trendline, look for profit taking activity to ramp up in earnest among short-term options contracts.
Tesla Inc (TSLA)
Tesla is the one stock not getting the “sell on the news” treatment this week. Well … investors aren’t selling on good news at least. Goldman Sachs came out yesterday and said that Tesla could need to raise $10 billion in capital to fund operations through 2020. The brokerage firm also said it believes that Tesla will continue to struggle to hit Model 3 production targets.
Both points have been sore spots for TSLA investors as the company struggles with excessive market optimism. That bullish optimism is now dying, in the options pits at least.
Volume yesterday rose to 383,000 contracts, or more than double Tesla’s daily average. Calls only eked out 51% of the day’s take. What’s more, the short-term outlook has grown quite bearish for Tesla.
The June put/call OI ratio now rests at 1.72. That said, this reading is down from Wednesday’s perch at 1.76, indicating that put traders may be the ones taking profits on Tesla this time.
As of this writing, Joseph Hargett held no positions on any of the aforementioned securities.