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Friday’s Vital Data: General Electric Company (GE), International Business Machines Corp. (IBM) and Caterpillar Inc. (CAT)

Joseph Hargett

U.S. stock futures are trading higher heading into the open, as Wall Street brushes off concerns about a government shutdown. The House provided a bit of confidence yesterday, after passing a one-month spending bill, but the measure has little support in the Senate.

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The economic calendar is thin this morning, with only January consumer confidence data on tap.

Heading into the open, Dow Jones Industrial Average futures are up 0.11%, S&P 500 futures have added 0.08% and Nasdaq-100 futures have gained 0.26%.

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Turning to the options pits, volume remained above average but dipped well below the recent flurry of activity. Overall, about 21.1 million calls and 16.7 million puts changed hands. The CBOE single-session equity put/call volume ratio rebounded to 0.56. The 10-day moving average held at 0.55.

Taking a closer look at yesterday’s options activity, General Electric Company (NYSE:GE) continued to draw heavy put volume amid a four-day losing streak. Meanwhile, International Business Machines Corp. (NYSE:IBM) call traders are being burned this morning by a post-earnings selloff. Finally, Caterpillar Inc. (NYSE:CAT) is trading ex-dividend today with third-quarter earnings on tap next week.

Friday’s Vital Options Data: General Electric Company (GE), International Business Machines Corporation (IBM) and Caterpillar Inc. (CAT)

General Electric Company (GE)

GE stock is looking to bounce back this morning after suffering its largest four-day losing streak in eight years. GE is down more than 11% since announcing more than $11 billion in charges due to its long-term care insurance portfolio and the new U.S. tax laws.

The decline has sparked considerable options speculation for GE stock, which hasn’t left the top ten most actives list all week. On Thursday, volume rose to over 457,000 contracts, with calls managing to scrape together 52% of the day’s take.

Most of these appear to be closeouts, however, as the February put/call open interest ratio has risen from 0.58 on Wednesday to 0.67 today. However, at least on large block of calls appears to have been purchased yesterday.

According to Trade-Alert.com, a block of 10,480 March $19 calls crossed traded yesterday at 21 cents, or $21 per contract. The price was listed near the bottom of the March $19 call strike price range, but implieds rose nearly 1% when the trade crossed, indicating a buy to open.


International Business Machines Corp. (IBM)

IBM stock is trading more than 3% lower heading into the open as investors fret over the company’s cautious 2018 guidance. Ironically, IBM posted it’s first rise in revenue in five years. Adjusted fourth-quarter earnings came in at $5.18 per share as revenue rose to $22.54 billion. Analysts were expecting earnings of $5.17 a share on revenue of $22.05 billion.

However, IBM expects 2018 operating profits of $13.80 per share, below the consensus estimate of $13.92. “Tax will be a headwind in 2018 year-to-year,” said CFO James Kavanaugh.

Options traders appear to have been caught flat footed. Volume rose to 214,000 contracts yesterday, with calls making up 71% of the day’s take. What’s more, the February put/call OI ratio arrives at 0.71 after having declined from a reading north of 0.80 last month.

Judging from February OI levels, IBM could be stuck between $160 and $170 through February expiration. Both the $160 strike and the $170 strike are home to more than 8,000 contracts in February, with only the deep out-of-the-money $230 strike sporting a higher level of open interest (10,000 contracts).

Caterpillar Inc. (CAT)

Caterpillar stock trades ex-dividend on Monday, which means that the stock is in for a heavy influx of call volume. That trend started yesterday, as volume surged to 171,000 contracts, more than five times CAT’s daily average. Calls gobbled up 92% of the day’s take.

Shareholders of record as of the close today are eligible for a dividend payment of 78 cents per share on Feb. 20.

There is another reason for CAT options traders to ramp up activity, however. Caterpillar will release its fourth-quarter earnings report on Thursday, Jan. 25. Analysts are expecting a profit of $1.77 per share on revenue of $11.97 billion. The whisper number arrives at $1.88 per share.

As of this writing, Joseph Hargett was long on General Electric Company (GE) stock.

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