The major market indices split on Friday, with the Dow Jones Industrial Average gaining 0.7% while the rest of the market slid lower. Though the NKE stock didn’t appear on Friday’s most active options listing, Nike Inc. (NYSE:NKE) was a bright spot, gaining nearly 9% following a better-than-expected quarterly report. All in all, Wall Street was still holding back ahead of a speech by Fed Chair Janet Yellen.
Option volume rebounded to average levels on Friday, following a week of sluggish activity. The CBOE single-session equity put/call volume ratio edged higher to close out the week at 0.74, while the 10-day moving average continued to hold at 0.77.
In equity options activity, call volume returned to Apple Inc. (NASDAQ:AAPL) on Friday after Piper Jaffray weighed in on lines at Apple Stores in New York City for the new iPhone release. Elsewhere, Netflix, Inc. (NASDAQ:NFLX) option volume spiked after Goldman Sachs said that NFLX options were undervalued despite high volatility ahead of October earnings. Finally, Staples, Inc. (NASDAQ:SPLS) and Office Depot Inc (NYSE:ODP) saw extremes in call and put volume after the EU opened a probe into the companies’ $6.3 billion merger.
Apple Inc. (AAPL)
Piper Jaffray took stock of the line in front of the NYC Apple Store on Friday, reporting that about 650 people were waiting to purchase the new iPhone, compared to about 1,880 for last year’s launch. The brokerage cited seasonality and the iPhone launch in China — which decreased resellers in line — for the year-over-year decline. Piper Jaffray reiterated its “outperform” rating with a price target of $172 per share on AAPL stock.
Options activity for AAPL stock was largely par for the course on Friday, with about 845,280 contracts changing hands. The call/put split was also largely normal for AAPL, with calls commanding 60% of the day’s take. AAPL is currently struggling with resistance at $115 and its 10- and 50-day moving averages, so options traders should keep a close eye on activity at the weekly Oct 2 series $115 and $110 strikes this week.
Drilling down, the weekly October $115 strike sports call open interest of 16,984 contracts and put OI of 6,234 contracts. Meanwhile, there are 2,987 calls open at the $110 strike, compared to OI of 13,937 puts.
Netflix, Inc. (NFLX)
Expect both option volume and volatility to rise on NFLX contracts as we head deeper into October. According to a report from Goldman Sachs last week, implieds on NFLX calls and puts are seriously undervaluing the contracts ahead of the company’s October 14 quarterly earnings report. In its report, Goldman recommended straddling NFLX, simultaneously buying one at-the-money put and call, to take advantage of the low implieds.
Currently, Oct 16 series options are pricing in a post-earnings move of only about 6.3% for NFLX stock — well below the stock’s average single-session post-earnings move. Traders appeared to heed Goldman’s call last week, with volume rising to above average levels on Friday. That said, sentiment remains largely mixed, with Friday’s volume split at 53% calls and 47% puts.
Office Depot Inc (ODP) and Staples, Inc. (SPLS)
Both ODP stock and SPLS stock plunged on Friday following news that the EU had opened an investigation into potential antitrust concerns regarding the pair’s $6.3 billion merger. According to a statement on Friday, the European Commission believes that the deal could lead to higher prices and less choice for EU business customers.
Options traders weighed in on the pair by pushing option volume on both stocks to short-term highs. Additionally, nearly all of ODP’s volume on Friday traded as puts, while SPLS volume crossed as call activity. With ODP being purchased, this could hint at options traders’ expectations for ODP to fall and SPLS to rise in the wake of a failed deal. The simplest explanation for this split, however, remains arbitrage activity prior to the buyout.
As of this writing, Joseph Hargett did not hold a position in any of the aforementioned securities.
