The major market indices posted gains for the seventh consecutive session on Monday, with stocks aided by light Columbus Day trading. Energy prices remained weak on the day, with crude oil shedding more than 5%. Overall, the S&P 500 lagged with a gain of 0.13%, while the Dow Jones Industrial Average led the way higher, advancing 0.28%.
Options trading was also light due to the holiday. Volume on the CBOE came in below average on Monday, with call popularity dipping a bit on the day. By the close, the CBOE single-session equity put/call volume ratio bounced from Friday’s low of 0.62 to a reading of 0.67. The 10-day moving average, meanwhile, continued lower to tag a two-month low of 0.72.
On the equity option front, Apple Inc. (NASDAQ:AAPL) call volume faltered as analysts weighed disappointment in Apple Watch sales and car progress. Elsewhere, Twitter Inc (NYSE:TWTR) option volume spikes on rumors of potential layoffs, while EMC Corporation (NYSE:EMC) and Dell made the rumors official with a $67 billion buyout.
Apple Inc. (AAPL)
While AAPL stock hasn’t lost investors much in 2015, neither has the stock gained anything for stockholders either. In fact, AAPL stock is delivering its worst performance in six years. Speculating on the matter, analysts at Manhattan Venture Partners opined that many investors are worried about Apple Watch sales and the coming Apple Car. Furthermore, analysts at Susquehanna noted that Wall Street once talked about Apple being “the next trillion-dollar company,” but now all anyone can talk about is how disappointing the stock has been this year.
While this type of malaise has a little impact on short-term sentiment for AAPL stock, the longer-term implications could be more insidious if bearish attitudes gain traction. Short-term optimism is already slipping among canary-in-the-coal-mine options traders. On Monday, volume dipped to just 465,836 contracts, with calls only making up 58% of the day’s take.
While this level of option volume would be heavy for any other stock, for AAPL, it’s a clear sign of flagging bullish sentiment. The only caveat would be the Columbus Day holiday.
AAPL watchers will want to keep a close eye on the situation for any continued decline in call activity for the stock.
Twitter Inc (TWTR)
One step up and two steps back for TWTR stock. The shares plunged nearly 7% on Monday after rumors hit that the company was looking to lay off a considerable number of employees in a move to revitalize Twitter’s bottom line. While the market isn’t saying that such restructuring doesn’t need to be done, the shock of such a move shortly after naming Jack Dorsey as CEO again appears to have been a bit much for TWTR investors.
Options traders appeared to take the news in stride, with volume arriving above average at 142,698 contracts despite light holiday trading. Additionally, calls make up 68% of Monday’s activity. Taking a look at October open interest reveals extremely heavy OI at the $30 strike – 126,241 calls and 114636 puts.
Any recovery for TWTR stock will have to go through this round-number region, making the likelihood of a meaningful breakout this week remote at best, even without yesterday’s plunge.
EMC Corporation (EMC)
Let the arbitrage begin! EMC and Dell officially announced a deal yesterday, with Dell and private equity firm Silver Lake snapping up EMC for a cool $67 billion. EMC’s board has already approved the buyout, but stockholders and regulatory agencies still need to sign off. Terms of the deal grant EMC stockholders $24.05 per share plus tracking stock related to EMC’s holdings in subsidiary VMware, Inc. (NYSE:VMW)
Naturally, EMC was flooded with calls on Monday following the news. Volume rose to 87,941 contracts, with call options accounting for 64% of the day’s take. Traders are currently focused on the Oct $27 strike (33,662 calls) and the $25 strike (16,907 puts), but look for OI and volume levels to increase notably during the next week or so as options traders jockey for position on the buyout.
As of this writing, Joseph Hargett did not hold a position in any of the aforementioned securities.
