Broad selling pressure continued to wash over Wall Street on Thursday, as low oil prices, concern about potential changes in Fed monetary policy and global economic growth sent traders to the sidelines. On the day, the S&P 500 fell 2.11% to its lowest level since February, and the Dow Jones Industrial Average fell below 17,000 for the first time since October.
With the market awash in red, protectionism appears to have swept up options traders, as volume rebounded across the board on Thursday. Volume swelled to well above Summer levels, as put activity pushed the CBOE’s single-session equity put/call volume ratio to new a one-week high of 0.82. The 10-day moving average held at 0.75 for the third-consecutive session.
In equity options activity, Apple Inc. (NASDAQ:AAPL) option volume spiked after poor price action and an imminent “death cross” set off alarm bells for technical analysts. Elsewhere, Netflix, Inc. (NASDAQ:NFLX) drew heavy put volume after announcing it would fund a new series by hiking prices in Europe. Finally, Walt Disney Co (NYSE:DIS) was downgraded at Wells Fargo as concerns over “cord cutting” grow.
Apple Inc. (AAPL)
There’s no denying that the AAPL stock price action has been weak for the past several months. Selling pressure has picked up considerably since Apple’s weak second-quarter earnings report, and, with broad-market selling pressure adding to the mix, AAPL’s 50-day and 200-day moving averages are now heading toward a technical formation known as a “death cross.”
This formation occurs when the faster moving short-term trendline (50-day) crosses below the slower moving long-term trendline (200-day). The “death cross” may not be as dire an indicator as its name suggests, but historical data points to these technical formations as marking the start of bear markets for stocks. The last time AAPL stock saw a death-cross, the stock plunged 27% in just four months.
Options traders have picked up on the bearish sentiment. Overall, 1.25 million AAPL stock contracts traded on Thursday, with call volume accounting for only about 55% of the day’s volume — well below the norm for AAPL.
Looking ahead to weekly August 28 series expiration, heavy put open interest is now accumulating at the deep out-of-the-money $85 and $95 strikes, totaling 15,827 and 11,437 contracts, respectively. With AAPL still trading near $111, these puts are mostly likely defensive in nature, especially considering they expire at the end of next week.
Netflix, Inc. (NFLX)
NFLX stock plunged nearly 8% on Thursday after traders caught wind of Netflix’s move to hike prices in Europe to help pay for a new original series. The new series, about Queen Elizabeth II, will be shot in the U.K. with a $150 million budget for 60 episodes.
To offset the cost, European subscription prices for new customers are being hiked from €8.99 to €9.99 per month. NFLX shareholders appear to be pricing in a potential hit to the bottom line following a similar price hike in the U.S. in 2014.
Puts were the investment vehicle of choice for NFLX on Thursday. Volume swelled to a short-term record of 407,192 contracts, with puts comprising 56% of the day’s take. As for next week’s August 28 series expiration, peak OI currently resides at the $100 strike, totaling 5,092 contracts, with another 1,109 contracts amassing at the $98.57 strike.
Walt Disney Co (DIS)
Digital streaming has poked the mouse’s house full of holes, as ESPN, once a paragon of the cable TV business model, continues to hemorrhage viewers. For its part, Walt Disney has largely embraced online streaming of digital content, but the company has yet to reassure investors or analysts about the potential hit to its bottom line during the transition.
Along those lines, Wells Fargo downgraded DIS stock to “market perform” from “outperform,” sending DIS down more than 6% on Thursday.
The downgrade also sparked an influx of put volume for DIS stock. Overall, volume rose to a near-term record 293,157 contracts, with puts claiming 56% of the overall activity. Looking ahead to next week, options traders have their sights set on the August $98 put strike, where 4,620 contracts currently reside. Furthermore, another 1,293 contracts are currently open at the deep out-of-the-money August $90 strike.
As of this writing, Joseph Hargett did not hold a position in any of the aforementioned securities.
