U.S. stock futures are trading higher once again this morning. Wall Street continues to ride high off optimism from easing U.S./China trade tensions. What’s more, easing Treasury yields and a weakening dollar are also providing lift for stocks this morning.
Against this backdrop, futures on the Dow Jones Industrial Average are up 0.21%. S&P 500 futures have gained 0.17% and Nasdaq-100 futures have added 0.34%.
In options activity, volume remained pretty tame amid yesterday’s excitement. About 18.7 million calls and 12.7 million puts changed hands on the session. On the CBOE, the single-session equity put/call volume ratio plunged to 0.54. The 10-day moving average held at 0.58.
Options traders had their hands full with General Electric Company (NYSE:GE) yesterday, after the company announced the merger of it’s transports unit with Wabtec Corp. (NYSE:WAB). Meanwhile, Micron Technology, Inc. (NASDAQ:MU) bolstered the entire semiconductor sector with it’s strong third-quarter outlook.
Finally, Chesapeake Energy Corporation (NYSE:CHK) made a return appearance on the most actives list after natural gas prices gained ground.
Let’s take a closer look:
General Electric Company (GE)
GE stock added to it’s 9% May rally yesterday. The company announced an $11.1 billion deal to merge its transportation business with Wabtec. The transaction values the GE transportation business, which makes train engines, at $11.1 billion.
As part of the deal, GE receives an upfront payment of $2.9 billion and a 9.9% stake in the combined company. The merger is expected to complete in early 2019.
GE options traders were not as enthusiastic as you might have expected following the deal. Volume rose to 377,000 contracts, or nearly double GE’s daily average, but calls only made up 59% of that activity.
Short-term expectations for GE stock have risen steadily among options traders. Specifically, the June put/call OI ratio now stands at 0.58 — a far cry from the readings near 1 taken last month.
Micron Technology, Inc. (MU)
Micron gave the semiconductor sector a shot in the arm yesterday. The company lifted third-quarter guidance to earnings of $3.12 to $3.16 per share on revenue of $7.7 billion to $7.8 billion. Micron’s previous target rested at $2.76 to $2.90 per share on revenue of $7.2 billion to $7.6 billion.
Analysts were expecting earnings of $2.86 per share on revenue of $7.49 billion. “Our third quarter results are driven by focused execution of our strategy against a backdrop of healthy industry fundamentals,” said CEO Sanjay Mehrotra.
Micron also approved a $10 billion stock buyback plan.
That was all bullish MU options traders needed. Volume surged to 295,000 contracts, or more than 1.2 times the stock’s daily average. Calls gobbled up 74% of the day’s take.
But the positive news didn’t change the trend in MU’s June options activity. The June put/call OI ratio rose to 0.58, extending a trend of profit taking we’ve seen for the past week.
Chesapeake Energy Corporation (CHK)
CHK stock shot more than 13% higher yesterday following the latest data on natural gas supplies from the Energy Information Administration (EIA). Natural gas supplies actually rose for the week, but the EIA highlighted a tightening market dynamic going forward.
Specifically, demand is projected to continue to rise while supply remains stagnant. The long-term outlook boosted natural gas prices, when a weekly inventory increase would have normally push prices lower.
As I noted yesterday, this continued rally in CHK stock is squeezing short sellers, who hold nearly 22% of CHK’s float short. CHK has already bested it’s 50- and 200-day moving averages and taken out former resistance at $4. The shares are headed toward $5 in a hurry, and a break above $5 could kick off another rapid short-squeeze rally in the shares.
To ease their pain, many CHK short sellers have turned to call options. Volume rocketed higher once again fro CHK yesterday, topping 171,000 contracts and tripling CHK’s daily average. Calls were responsible for 74% of that activity. What’s more, open interest at the June $4.50 call has quickly risen in the past week and now tops 2,200 contracts.
If CHK continues to rise, I would expect to see the June or July $5 call targeted next as short sellers look to put a cap on losses.
As of this writing, Joseph Hargett held no positions on any of the aforementioned securities.