U.S. stock futures are rising once again, as Wall Street recovers from another salvo in the U.S./China trade war. Stocks plunged yesterday after President Donald Trump pushed for another $200 billion in fresh tariffs on Chinese imports.
Today, Wall Street is more focused on inflation data. The June Consumer Price Index (CPI) is slated for release this morning. Economists are expecting the CPI to rise 0.2% on the month. A stronger reading could reinforced the Federal Reserve’s push for two more interest rate hikes this year — bringing the total to four hikes.
Heading into the open, futures on the Dow Jones Industrial Average have risen 0.73%. Meanwhile, S&P 500 futures are up 0.53% and Nasdaq-100 futures have added 0.5%.
In options activity, volume remained anemic on Wednesday. Overall, only about 14.7 million calls and 14.8 million puts changed hands on the session. On the CBOE, the single-session equity put/call volume fell to 0.59. The 10-day moving average rose to a two-month high of 0.63.
Options traders backed off technology stocks a bit, hitting up American Airlines (NASDAQ:AAL) on it’s lowered forecast. Offshore drilling concern Transocean (NYSE:RIG) was also targeted, though mostly by one rather large bearish put spread. Finally, Micron Technology (NASDAQ:MU) slipped in with a fair amount of call volume following bullish remarks on CNBC.
Let’s take a closer look:
American Airlines (AAL)
American stunned investors yesterday when it announced that revenue for each seat flown a mile likely only rose 1%-3% in the second quarter. The range was down 0.5% from American’s prior forecast. Investors sent AAL stock down more than 8% on the news, as American deals with high fuel prices in addition to losing fare pricing power.
Options traders were keyed up following the report. Volume on AAL soared to 161,000 contracts, or nearly five times the stock’s daily average. Calls were the most popular, claiming 55% of the day’s take.
That said, the biggest trade of the day on AAL was a block of 42,000 August $36 puts. According to data from Trade-Alert.com, these puts crossed at the bid price. Combine this with the fact that implied volatility fell and open interest at the strike rose to about 43,000 contracts, and we can safely assume these puts were sold to open.
AAL stock is poised to open north of $36 this morning.
Micron Technology (MU)
Chip stocks are still among Wall Street’s favorites, even with the escalating U.S./China trade war. Chip sector darling Micron got a boost yesterday when Sean O’Hara, president of Pacer ETFs Distributors, says that semiconductor companies were the future of the technology sector. O’Hara said he favored stocks like Micron over even the likes of Facebook (NASDAQ:FB) and Google (NASDAQ:GOOG, NASDAQ:GOOGL).
“We’re entering that Jetsons-like phase of the world where everything’s connected and the internet of things is potentially a far bigger opportunity for the chipmakers than the cellphone or devices have been,” O’Hara told CNBC.
Options traders need very little prompting to rush into MU calls, and they did so yesterday despite the stock dropping more than 2%. Volume came in at 246,000 contracts, with calls claiming 70% of the day’s take.
Despite the influx of calls, pessimism is still a big player in MU’s near-term options configuration. In fact, the July put/call open interest ratio comes in at 0.83. In other words, puts are nearly as popular as calls among short-term options traders. It’s understandable, given that MU stock hasn’t had a meaningful rally since May.
Oil prices continue to rise, and yet offshore drilling firm Transocean finds its stock falling this week. Capping the decline, RIG stock was down nearly 4% yesterday. Whether it was the recent share price weakness, or the $600 million senior note offering, options traders decided to pile into RIG puts yesterday.
Volume soared to 367,000 contracts on Wednesday, coming in at more than 13-times RIG’s daily average. Puts claimed 98% of the day’s take. In fact, those puts were dominated by one, solitary put spread.
According to Trade-Alert.com, one trader opened up a Jan 2019 $10/$12 bear put spread with 175,000 contracts per leg — or 350,000 contracts total, nearly all of yesterday’s activity. The spread went off at an ask price of 52 cents, or $52 per contract, and has a maximum profit of $1.48, or $148 per contract, if RIG closes at or below $10 when January 2019 options expire. That’s quite the bearish bet.
As of this writing, Joseph Hargett did not hold a position in any of the aforementioned securities.
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