Wednesday’s Vital Data: General Electric, Netflix and Intel

Stock Market

U.S. stock futures started out broadly lower this morning before turning positive. Trade-war fears continue to spread as rhetoric between the U.S. and its trading partners escalates. This morning, Wall Street was faced with threats of a full-scale trade war with China.

Specifically, Chinese President President Xi Jinping has reportedly warned his cabinet to prepare for a “full-scale trade war.” Reports also note that the People’s Bank of China may stop buying U.S. Treasurys or even cut its holdings. But news that the administration would rely on the interagency Committee on Foreign Investment in the United States sent stocks on an abrupt about face

Heading into the open, futures on the Dow Jones Industrial Average are up 0.12%. Meanwhile, S&P 500 futures have risen 0.18% and Nasdaq-100 futures have gained 0.18%.

In options activity, volume was quite anemic on Tuesday as traders retreated from market volatility. Overall, about 16.4 million calls and 12.5 million puts changed hands yesterday. On the CBOE, the single-session equity put/call volume dropped to 0.52 — a one-week low. The 10-day moving average held at 0.56.

Options traders chased after analyst activity yesterday. Both Netflix (NASDAQ:NFLX) and Intel (NASDAQ:INTC) saw volume spikes after brokerage firms weighed in on this week’s activity. General Electric (NYSE:GE), however, drew heavy call volume after announcing a pair of major spin offs.

Let’s take a closer look:

Wednesday’s Vital Options Data: General Electric Company, Netflix and Intel Corporation

General Electric (GE)

GE options volume soared after the company confirmed that it is planning to spin off its health care division and sell its holdings in oil services group Baker Hughes (NYSE:BHGE). The breakup comes as GE struggles with a massive debt balance sheet and non-complementary businesses.

“We are aggressively driving forward as an aviation, power and renewable energy company-three highly complementary businesses poised for future growth. We will continue to improve our operations and balance sheet as we make GE simpler and stronger,” CEO John Flannery said.

GE stock soared nearly 8% on the news, and GE options traders chased the rally. Volume swelled to over 615,000 contracts, more than tripling GE’s daily average. Calls made up 64% of the day’s take.

The attention to calls is a marked shift from last week’s flood of put contracts, but GE is still in the doghouse with options traders. Specifically, the July put/call open interest ratio comes in at 1.32. In other words, puts still dominate GE’s short-term outlook as speculative traders remain very bearish on the shares.

Netflix, Inc. (NFLX)

Netflix stock bounced nearly 4% higher yesterday after Imperial Capital initiated NFLX stock at “outperform” with a $503 price target. “In our view, the greatest competitive advantage Netflix has as it seeks to grow subscribers from current levels in its pricing structure, and the value the consumer receives for that structure,” Imperial Capital said in a note.

NFLX options traders naturally responded with call contracts. More than 214,000 contracts traded on NFLX stock yesterday, with calls claiming 58% of that activity. What’s more, NFLX’s July put/call OI ratio continues to creep lower, slipping from last week’s 0.99 to today’s reading of 0.98. A firm break back above $400 could lend speed to NFLX call adds.

Intel Corporation (INTC)

The unexpected departure of Intel’s CEO has created considerable uncertainty for the company — so much that Bernstein downgraded INTC stock to “underperform” from “market perform” and cut its price target to $42 from $54.

According to Bernstein, Intel likely won’t raise guidance until its management situation is sorted out. Additionally, the ratings firm cited unprecedented competition, which could hurt earnings.

Despite the bearish news, INTC options traders focused on call options yesterday. Volume rose to 129,000 contracts, with calls claiming 58% of the day’s take. Despite the call volume, Intel’s sentiment backdrop remains murky. Currently, the July put/call OI ratio comes in at 0.71.

This reading ranks just above the midpoint of all such readings taken in the past year. In other words, INTC options traders appear noncommittal overall, which could be a sign that INTC stock will stagnate.

As of this writing, Joseph Hargett held no positions on any of the aforementioned securities.

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