Friday’s Vital Data: Microsoft, General Electric and eBay

U.S. stock futures are divided this morning. Wall Street is torn between cheering positive corporate earnings results and taking shelter from growing trade fears.

In earnings, General Electric (NYSE:GE) and Microsoft (NASDAQ:MSFT) both posted solid quarterly results. However, President Donald Trump is preparing to put more than $500 billion in tariffs on Chinese goods imported to the U.S. The comments followed on the heels of Trump’s threat of “tremendous retribution” against the EU.

Against this backdrop, futures on the Dow Jones Industrial Average are down 0.41% and S&P 500 futures have fallen 0.21%. Meanwhile, Nasdaq-100 futures have risen 0.09% on post-earnings strength in MSFT stock.

In options activity, volume continued to climb on Thursday, bringing activity to above normal for the session. Overall, about 19.2 million calls and 15.4 million puts changed hands yesterday. Despite the ramped up call volume, activity on the CBOE saw the single-session equity put/call volume ratio rise to 0.62. The 10-day moving average held at 0.61.

Options traders were once again focused on corporate earnings. Microsoft and General Electric saw heavy call option speculation ahead of their respective quarterly reports. Meanwhile, eBay (NASDAQ:EBAY) was punished for light revenue and weak guidance.

Let’s take a closer look:

Friday’s Vital Options Data: Microsoft, General Electric and eBay

Microsoft (MSFT)

Microsoft once again provided investors with a stellar quarterly earnings report last night. For the fourth-quarter, Microsoft said it earned $1.13 per share, blowing past estimates for $1.08 a share. Revenue rose to $30.09 billion also topping expectations for $29.21 billion.

But the cloud services was the real winner. Microsoft’s flagship Azure cloud service saw sales skyrocket 93%. Total cloud services revenue came in at $23 billion, with margins expanding 57%.

Options traders were preparing for positive results yesterday. Volume for MSFT stock rose to 420,000 contracts, with calls claiming 63% of the day’s take. Looking out to August, MSFT options traders are looking for an extended run higher from MSFT. Currently the August put/call open interest ratio comes in at 0.59, with calls on the verge of doubling puts in this soon-to-be front-month series.

General Electric (GE)

General Electric told investors almost exactly what they needed to hear this morning.  “We are progressing on our plans to make GE simpler and stronger,” said Chief Executive John Flannery. The remarks came as General Electric posted better-than-expected second-quarter results.

By the numbers, GE said it earned 19 cents per share, besting the consensus by a penny. Revenue rose 3% to  $30.1 billion, also above the consensus view for $29.4 billion.

GE options traders were ready. Volume rose to 312,000 contracts, with calls gobbling up 64% of the day’s take. Most of this bullish activity took place in the front-month July series, which expires at the close today.

Looking at August, we are reminded that there is still considerable bearish sentiment left to thaw on GE stock. Specifically, the August put/call OI ratio comes in at 1.05, with puts easily outnumbering calls for the series. If GE can sustain its post-earnings rally, we could see a drawdown in negativity heading into August expiration.

eBay (EBAY)

eBay stock plunged more than 10% yesterday following earnings. The reaction seems a bit overboard given the company’s quarterly results. Diving in, eBay beat per share expectations and hit the lower end of its revenue guidance at $2.64 billion. eBay also lowered its full year outlook to $10.75 billion to $10.85 billion, from its previous range of $10.9 billion to $11.1 billion, and lifted its full year earnings expectations.

It was quite a mixed bag, but hardly worth a 10% haircut for the stock. EBAY options traders were just as divided on the shares. Volume came in at 168,000 contracts, with calls snatching up 54% of the day’s take.

That said, it appears that EBAY options traders are looking for a rebound in August. The August put/call OI ratio currently rests at 0.67, and has trended lower for the past couple of weeks. With EBAY stock now trading oversold near support at $34, a rally heading into August expiration seems likely.

As of this writing, Joseph Hargett did not hold a position in any of the aforementioned securities.

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