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Thursday’s Vital Data: Baidu, Netflix and Bank of America

Tyler Craig

U.S. stock futures are hovering near unchanged, continuing their streak of sleepy summer opens. The talk of the town is Netflix (NASDAQ:NFLX) earnings, which missed revenue estimates and has the stock down 11% premarket.

Thursday's Vital Data: Baidu, Netflix and Bank of America

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Ahead of the bell, futures on the Dow Jones Industrial Average are down 0.18%, and S&P 500 futures are lower by 0.05%. Nasdaq-100 futures have shed 0.07%.

In the options pits, calls outpaced puts by a modest margin, while overall volume ticked slightly above average levels. Specifically, about 18.5 million calls and 15.6 million puts changed hands on the session.

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Meanwhile, over at the CBOE, the single-session equity put/call volume ratio rose to 0.67 — a one-month high. The 10-day moving average continued its sideways drift at 0.60.

There were three marquee stocks heavily favored by options traders on Wednesday: Baidu (NASDAQ:BIDU), Netflix and Bank of America (NYSE:BAC).

Let’s take a closer look:

options trading chart

Baidu (BIDU)

Ever since May’s earnings-induced plunge, Baidu shares have been unable to get off the mat. The two months of churn have allowed the descending 50-day moving average to catch-up and the time could be nearing for a resolution out of the tight range established since May.

The next quarterly report is due out July 30 and could provide the kick needed to spark BIDU stock’s next move. If options traders possess any prescience, then the eventual break will be lower. Yesterday’s options trading saw massive put volume relative to calls. Total activity ramped to 361% of the average daily volume, with 174,074 contracts traded; 92% of the trading came from put options alone.

Despite the dash for puts, implied volatility fell on the session to 40% or the 47th percentile of its one-year range. Premiums are now pricing in daily moves of $2.85 or 2.5%.

Netflix (NFLX)

Netflix shares plunged last night on disappointing earnings results, and the pain is continuing premarket. The primary culprit for investors’ ire is the lackluster number of new subscribers for the quarter. The company had previously forecasted 5 million new customers, but was only able to welcome 2.7 million paid subscribers into the fold.

NFLX posted second-quarter earnings-per-share of 60 cents on revenue of $4.92 billion.

With NFLX stock poised to open near $323 or down 11%, the long-awaited break of its tight, seven-month trading range is finally upon us. Whether we see a close below it remains to be seen. We have seen buyers emerge to save potential breakdowns before, but today’s plunge has weakening fundamentals driving it so it could stick.

On the options trading front, traders favored calls ahead of the report. Total activity swelled to 242% of the average daily volume, with 320,247 contracts traded. Calls claimed 58% of the day’s take.

This morning’s 11% puke was well above expectations. Option premiums were forecasting a gap of $22 or 6%, so we’re looking at a sizeable move that will deliver big profits to traders swinging long volatility positions like straddles and strangles into the number.


Bank of America (BAC)

Bank earnings rolled on yesterday, this time with Bank of America stepping up to the plate. Its early morning rally melted into the close leaving the stock up a scant 0.6%. If you’ve never paid attention to bank earnings in the past, one thing should become crystal clear after this week’s showing. They’re boring and rarely generate jaw-dropping moves seen from high-flying tech stocks.

For the quarter, Bank of America earned 74 cents a share on $23.2 billion in revenue. Compared to the year-ago quarter, both measures marked growth of 8% and 2.1%, respectively.

The price chart for BAC stock leaves little interesting to chat about. It remains stuck in a seven-month range complete with crisscrossing moving averages that reveal a tie between bulls and bears on every time frame. Shareholders continue to collect a 2.06% dividend, while waiting for resolution.

A jump over $29.70 resistance could get something going on the upside, but until then, it’s hard to get excited about a bullish play.

On the options trading front, calls were favored over puts. Activity climbed to 215% of the average daily volume, with 442,160 total contracts traded. Calls accounted for 65% of the tally.

With such a snoozer of a reaction, traders whacked implied volatility down to 23%. That lands it at the 21st percentile of its one-year range and means the expected daily moves are now 42 cents or 1.4%.

As of this writing, Tyler Craig didn’t hold a position in any of the aforementioned securities. Check out his recently released Bear Market Survival Guide to learn how to defend your portfolio against market volatility.

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