U.S. stock futures are rallying this morning, driven by gains in the energy sector. Wall Street is digesting President Donald Trump’s decision to pull out of the U.S./Iran nuclear deal, which includes heavy sanctions on the oil-producing country.
Speaking of oil, the June contract was last seen higher by nearly 3% at roughly $71 per barrel.
Heading into the open, futures on the Dow Jones Industrial Average are up 0.46%, S&P 500 futures have added 0.41% and Nasdaq-100 futures have gained 0.30%.
Turning to the options pits, volume remained anemic yesterday as traders remained on the sidelines ahead of Trump’s announcement on Iran. Overall, only about 15.7 million calls and 12.8 million puts crossed the tape. On the CBOE, the single-session equity put/call volume ratio rebounded from recent lows to arrive at 0.61 — a one-week high. The 10-day moving average held at 0.64.
Options traders remained focused on corporate earnings, with Valeant Pharmaceuticals Intl Inc (NYSE:VRX) and Walt Disney Co (NYSE:DIS) seeing heavy activity. Meanwhile, Citigroup Inc (NYSE:C) options traders grew bullish after ValueAct revealed it bought a $1.2 billion stake in the company.
Let’s take a closer look:
Valeant Pharmaceuticals Intl Inc (VRX)
Valeant wowed investors yesterday morning after it reported quarterly earnings of earned 89 cents per share on revenue of $1.995 billion. Analysts were expecting 60 cents per share and $1.95 billion in revenue. Additionally, in an attempt to leave its scandal-ridden past behind, Valeant said it was changing its name to Bausch Health Companies Inc. effective July.
Keying off strong earnings and an 8.8% spike in VRX stock, options traders piled into calls. Volume topped 181,000 contracts, more than six times VRX’s daily average. Calls made up 69% of the day’s take.
Short-term optimism was already rampant on Valeant stock, and yesterday’s call activity may have been related to profit taking. Still, the May put/call open interest ratio rests at 0.51, with calls nearly doubling puts in the series.
Peak call OI of more than 26,000 contracts lies at the now in-the-money $18 strike. Look for a fair amount of profit taking here, as these options expire at the end of next week.
Walt Disney Co (DIS)
Strong box office showings from “Black Panther,” Star Wars and the Avengers movies blasted Disney to Street-beating first-quarter results yesterday. The Mouse’s House said earnings rose 23% to $1.84 per share on revenue that rose 9% to $14.55 billion. Analysts were expecting earnings of $1.68 per share on revenue of $14.23 billion.
The beat was largely anticipated, however, and expectations were apparently higher. DIS stock slipped 0.67% yesterday. That didn’t stop options traders from piling into calls, though.
Volume jumped to 147,000 contracts, more than quadrupling DIS’s daily average. Calls gobbled up 61% of the day’s take. As for soon-to-expire May options, the put/call OI ratio rests at 0.65, down from last Friday’s reading of 0.77.
Finally, if you got in on the May $100/$102 bull call spread I recommended on Friday, you’ve got a tough decision. The position is near a 100% gain as of this morning with a little over a week until expiration. DIS stock is slipping this morning, but could rebound as “Avengers: Infinity War” brings in more box office revenue. You can take profits now, or wait it out for a full return if DIS tops $102 by next Friday.
Citigroup Inc (C)
Citigroup stock jumped more than 3.5% yesterday after activist fund Value Capital Management (ValueAct) announced a $1.2 billion stake in the company. ValueAct said it expects Citigroup to return more than $50 billion to investors over the next two years. The fund also said it would continue to boost its Citigroup holding “opportunistically.”
That was enough reason for C stock options traders to take aim at Citigroup. Volume soared to nearly 180,000 contracts, or about double Citigroup’s daily average. Calls were king, making up 67% of the day’s take.
That said, short-term traders remain largely ambivalent toward C stock. The May put/call OI ratio rests at 0.90, with puts and calls in near parity. I would expect yesterday’s revelation to improve options sentiment on C stock, though it may only begin to show in the back month options contracts.
As of this writing, Joseph Hargett held no positions on any of the aforementioned securities.