U.S. stock futures are headed lower this morning. With very little on the earnings front to drive gains, Wall Street was left to brood on the growing trade war between the U.S. and China.
Yesterday, the U.S. announced a list of $16 billion in Chinese import that would be hit with 25% tariffs. The U.S. is considering duties on $200 billion more. Beijing officials are set to respond with retaliatory tariffs on up to $110 billion of U.S. goods.
Heading into the open, futures on the Dow Jones Industrial Average are down 0.07% while S&P 500 futures have fallen 0.1%. Nasdaq-100 futures, meanwhile, have shed 0.26%.
In options activity volume bounced back from Monday’s low, but remained average for summer activity. Overall, about 17.1 million calls and 13.5 million puts changed hands on the session. Over on the CBOE, the single-session equity put/call volume ratio extended recent gains to hit 0.64, overlapping the 10-day moving average, which is also at 0.64.
Options traders were knee deep in earnings on Monday. Snap (NYSE:SNAP) attracted the most speculation on the day, as traders bet bearishly ahead of earnings. Walt Disney (NYSE:DIS) also drew earnings attention from options traders, while Micron (NASDAQ:MU) bulls longed for a rebound.
Let’s take a closer look:
Snap (SNAP)
SNAP stock is in for an interesting ride today. Last night, the company reported second-quarter earnings that topped Wall Street expectations and guided above analyst targets for the third quarter.
However, Snap also said that its user base declined 2%. SNAP stock initially surged 11% in after hours trading, but the shares are heading into the open down about 1% on active user concerns.
SNAP options traders were gearing up for a decline ahead of the event. Volume yesterday came in at 481,000 contracts, topping all equity volume on the day. Puts claimed the lion’s share with 64% of the day’s take.
Looking out to September, the put/call open interest ratio has ballooned to a reading of 1.84, with puts nearly doubling calls for the series. Given this sentiment backdrop, and Snap’s user issues, I would expect puts to accumulate further and SNAP stock to drift lower following today’s reaction.
Walt Disney (DIS)
Walt Disney failed to live up to expectations when it delivered its third-quarter earnings results last night. Disney said it earned $1.87 per share on revenue of $15.23 billion. Wall Street was looking for $1.95 on sales of $15.34 billion.
Both “Avengers: Infinity War” and “The Incredibles 2” were blockbuster successes, but operating income was dented by a $100 million film impairment charge related to two animated films Disney decided not to release.
Options traders were mostly bullish ahead of the report. Volume came in at 181,000 contracts, with calls snapping up 61% of the day’s take. But, DIS stock in only down about 1% premarket, hinting that a quick recovery could be in the cards.
September options traders are leaning toward a drift lower or stagnation, however. The back-month put/call ratio rests at 0.84, which is well above Disney’s average for this time of year.
Micron Technology, Inc. (MU)
Another group of investors longing for a rally have gathered around Micron Technology. MU stock has been pummeled since mid-June after China banned the sale of some of the company’s products. Furthermore, the escalating U.S./China trade war has also weighed on sentiment for MU stock, sending the shares steadily lower in the past two months.
This negativity hasn’t stopped MU bulls, however. The further MU stock slides, the more bullish sentiment has become. In fact, InvestorPlace’s own Luke Lango recommends buying any dip toward $50.
Options traders have taken a similar tack, flooding the stock with bullish bets. On Tuesday, more than 111,000 contracts changed hands on MU, with calls gobbling up 67% of the day’s take.
What’s more, the September put/call OI ratio rests at 0.51 as calls nearly double puts for the series. With MU reporting earnings next month, I would be very surprised if this bullish ramp up slows down any time soon.
As of this writing, Joseph Hargett did not hold a position in any of the aforementioned securities.
