U.S. stock futures are headed higher this morning. Wall Street bulls are extending yesterday’s late-session rally into this morning, as trade war fears begin to ease. Traders appear more focused on looming first-quarter earnings season rather than the new Chinese tariffs.
Against this backdrop, Dow Jones Industrial Average futures are up 0.28%, S&P 500 futures have added 0.47% and Nasdaq-100 futures have risen 0.78%.
Turning to the options pits, volume rebounded on Wednesday, but still remained below average for 2018. Overall, about 17.8 million calls and 15.9 million puts changed hands on Tuesday. The CBOE single-session equity put/call volume ratio fell to 0.63. The 10-day moving average ticked lower to 0.68.
Taking a closer look at Wednesday’s options activity, Alibaba Group Holding Ltd (NYSE:BABA) breached its 200-day moving average yesterday. Traders still flooded BABA stock with call options however, despite rising Chinese trade tensions.
Elsewhere, Microsoft Corporation (NASDAQ:MSFT) attracted a bump in call activity after setting a quarterly earnings date. Finally, General Electric Company (NYSE:GE) options volume was well below average despite a price-target cut from Stifel.
Alibaba Group Holding Ltd (BABA)
Chinese trade war rumblings have not been good for Alibaba stock. BABA shares are down more than 16% since mid-March, breaching their 200-day moving average yesterday. The stock is now testing its early December 2017 lows and is on the verge of oversold territory.
BABA stock options traders picked up on this near-oversold status. Volume yesterday rose to over 295,000 contracts, with calls snapping up 64% of the day’s take.
In fact, according to Trade-Alert.com, one trader bought a block of 10,000 April $200 calls for the ask price of $1.42, or $142 per contract. Breakeven on this trade lies at $201.42, which is well within reach if BABA can put together a rebound alongside the rest of the market.
Microsoft Corporation (MSFT)
Microsoft officially set its fiscal third-quarter earnings date yesterday. The software behemoth will report after the close on April 26. Wall Street is expecting earnings to rise 21% year-over-year to 85 cents per share. Revenue is expected to rise 9.4% to $25.77 billion.
Additionally, Microsoft announced it was spending $5 billion on development of Internet of Things (IOT) devices over the next four years. Combined with Microsoft’s cloud services initiatives, this IOT push could have a significant impact on the company’s bottom line.
Options traders are growing bullish ahead of Microsoft’s quarterly earnings report. Volume yesterday rose to 174,000 contracts, with calls accounting for 63% of the day’s take — a near-term high for MSFT. Additionally, weekly April 27 implieds are pricing in a potential post-earnings move of about 8.5% for MSFT stock.
General Electric Company (GE)
The hits just keep coming for General Electric. On Tuesday, Stifel Nicolaus cut its price target from $15 to $13, citing continued challenges at its power business and overall growth concerns. Then, yesterday, GE announced it would restate two years of earnings for 2016 and 2017 due to new accounting rules.
Despite the bearish news, GE stock rallied a little more than 1% yesterday, joining in the late-session surge. Options traders picked up on the run, and chased calls as a result.
Volume was light yesterday for GE, amounting to only 142,000 contracts — about half the stock’s daily average for the past three months. Calls made up 62% of the day’s take.
Overall, short-term GE options traders have grown bullish of late. Specifically, the April put/call open interest ratio rests at 0.66, with calls nearly doubling puts for the series. Peak call OI totals 126,000 contracts at the overhead $15 strike, as traders bet big on a GE bounce.
As of this writing, Joseph Hargett held no positions on any of the aforementioned securities.
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