The major market indices ended flat-to-slightly-higher on Monday, as caution took hold of Wall Street ahead of a slew of corporate earnings reports. On the day, the S&P 500 treaded water with a gain of 0.03%, while the Nasdaq Composite led the way higher, advancing 0.38%.
Option volume remained brisk on Monday, with traders rushing to position themselves ahead of this week’s flood of quarterly earnings reports. On the CBOE, the single-session equity put/call volume ratio bounced from Friday’s one-month low to end at 0.67. The 10-day moving average, however, held firm at 0.72 for the third-consecutive session.
On the equity option front, Apple Inc. (NASDAQ:AAPL) saw a rebound in call activity after CEO Tim Cook touted 6.5 million paying Apple Music subscribers with earnings looming next week. Microsoft Corporation (NASDAQ:MSFT) call volume soared on Monday as traders prepared for Thursday’s quarterly earnings report. Finally, International Business Machines Corp. (NYSE:IBM) saw a smattering of call volume despite the stock’s post earnings plunge.
Apple Inc. (AAPL)
Speaking at the WSJD Live conference this weekend, Apple CEO Tim Cook crooned that Apple Music had grown to 15 million subscribers, with 6.5 million of those paid. However, Cook gave little information on Apple Watch sales — a sore point with many analysts on Wall Street — noting only that the watch should be given a chance and that customer satisfaction with the device was extremely high.
While call volume had taken a dive in recent weeks for AAPL stock, activity appears to be ramping up heading into next Tuesday’s quarterly earnings report. Apple is currently expected to post a profit of $1.88 per share, though EarningsWhisper.com pegs the whisper number at $1.99 per share.
Monday’s volume swelled to 409,318 contracts, with calls accounting for 62% of the day’s take. Looking ahead to weekly Oct 31 series open interest, call traders are focused on the $115 and $120 strikes, which sport OI of 14,745 contracts and 17,018 contracts, respectively. However, peak OI for the series totals 21,160 contracts at the $105 put strike — a development that may be seen as a note of caution ahead of next week’s report.
Microsoft Corporation (MSFT)
Microsoft will join in the flood of corporate earnings this week, releasing its third-quarter figures after the close on Thursday. Wall Street is expecting a profit of 58 cents per share on revenue of $21 billion, though EarningsWhisper.com places the whisper number a tad higher at 61 cents per share. Microsoft is on solid footing fundamentally, besting the consensus estimate in each of the past four quarters.
Options traders appear to be gearing up for another beat, as calls accounted for 79% of yesterday’s total volume of 179,181 contracts. Focus has fallen heavily on the weekly Oct 23 $50 call strike, which is currently home to 9,689 contracts in OI. Meanwhile, the $47, $47.50, and $48 strikes are all heavily congested, with OI totaling more than 3,200 contracts at each strike.
With MSFT currently trading in the $47.50 region, the shares could face stiff overhead options-related resistance. In other words, unless MSFT is able to quickly move above these strikes on an post-earnings rally, the shares could be range-bound heading into next week.
International Business Machines Corp. (IBM)
The blues continue for Big Blue this week, as IBM reported third-quarter earnings of $3.34 per share on revenue of $19.28 billion. Earnings easily topped the consensus target of $3.30 per but fell short of the whisper number of $3.37 per share. Additionally, revenue whiffed expectations for sales of $19.61 billion.
IBM stock plunged nearly 5% in after hours trading last night, with the shares looking to open somewhere below $145 heading into the open this morning. Options traders were divided heading into the report, with calls accounting for just 53% of yesterday’s total volume of 109,521 contracts.
Looking at the weekly Oct 23 series, peak OI totals 5,823 contracts at the overhead $155 strike, though IBM appears unlikely to hit that target given the stock’s initial reaction. Meanwhile, peak put OI totals 3,062 contracts at the $145 strike, with another 2,894 contracts at the $143 strike.
As of this writing, Joseph Hargett did not hold a position in any of the aforementioned securities.
