After two straight sessions of heavy selling, Wall Street bears are taking a breather today, with the Dow Jones Industrial Average looking at a potential triple-digit gain on the open. Bolstered by a 2% gain in China’s Shanghai Composite and the potential for strong December non-farm payrolls, futures on the Nasdaq Composite are up 0.89% heading into the open, followed by S&P 500 futures with a gain of 0.76, and Dow futures, which were last up 0.72%.
Equity options activity was hot and heavy heading into today’s weekly Jan. 8 series expiration. Puts dominated activity amid the selloff, with the CBOE single-session equity put/call volume ratio rising to a two-week high of 0.89. The 10-day moving average also hit a two-week high of 0.72.
Turning to news driving equity option activity, while Apple Inc. (NASDAQ:AAPL) stock dropped below $100 for the first time in 15 months, two more analysts joined the growing chorus downgrading their sales expectations for the iPhone. Meanwhile, Facebook Inc (NASDAQ:FB) stock also slipped below the century mark, though analysts at Vetr upgraded the stock. Finally, SunEdison Inc (NYSE:SUNE) plunged nearly 40% after the company released details of its new debt exchange deal.
Apple Inc. (AAPL)
The bearish bandwagon for AAPL stock is picking up steam. On Thursday, two more brokerage firms lowered their sales estimates for Apple’s flagship iPhone. UBS said that a supply chain cut in December would lead to a 15%-20% year-over-year decline in March production. Meanwhile, RBC Capital Markets cut its March iPhone sales projections from 54 million units to 45 million — representing a 26% year-over-year decline.
Two more sentiment points worth noting for AAPL include the stock’s first close below the $100 mark in the past 15 months, and the continued decline in daily call volume as a percentage of overall activity. On Thursday, total options volume came in at 2.3 million contracts, though calls only made up 59% of overall activity.
As I have noted here repeatedly, calls have steadily declined as a percentage of overall daily traffic for Apple, which two months ago lingered in the 63%-64% range. This could be an early warning sign for AAPL investors, especially if the sentiment situation continues to deteriorate.
Looking at today’s expiring weekly Jan 8 series, AAPL is staring up at considerable overhead call open interest, with 14,121 call contracts at the $100 strike likely to hold any significant rally in check. Support, meanwhile, lies at $95 with 9,427 put contracts should trading go south later in the session.
Facebook Inc (FB)
Like Apple, FB stock also gave up the ghost at the century mark on Thursday, marking the equity’s first trip below $100 since Oct. 22, 2015. Intraday charts suggest that FB has found support in the $97.50-$98 region, and the shares are up 1.5% in premarket trading. As such, a solid push by FB bulls today could help the shares recapture $100.
Adding potential fuel for the bulls, Vetr upgraded FB stock yesterday to “strong buy” from “buy.” The impact was muted on Thursday amid heavy broad-market selling pressure, but today’s early rebound may provide the impetus to push FB bulls into accumulate mode.
Unlike AAPL, however, FB’s call volume has not suffered in recent months. On Thursday, overall volume came in at a brisk 863,952 contracts, with calls snapping up 66% of the overall take. FB still faces considerable overhead OI in the weekly Jan 8 series today, with 3,972 contracts open at the $100 call strike. That said, heavier OI is staggered at the $101, $102 and $103 strikes, meaning that traders haven’t put all their attention squarely at $100.
With bullish sentiment holding firm for FB,the stock could climb back into triple-digit territory by the close today.
SunEdison Inc (SUNE)
SUNE stock was hammered on Thursday, as stockholders panned the latest the company’s new debt exchange deal. The new offering is a higher-than-expected $725 million second lien term loan with a higher than expected interest rate of LIBOR plus 10%. According to Stifel, the deal would add $40 million in interest expense and dilute shareholders by 18%.
Surprisingly, calls were the most popular option for SUNE on Thursday, despite the stock’s nearly 40% plunge. Overall volume came in at 574,662 contracts, with calls accounting for 59% of the day’s take.
SUNE is up more than 11% in premarket trading, but the shares are facing stiff headwinds in the $4-$4.50 region today. Specifically, some 2,400 calls are open at the $4 strike in the Jan. 8 series, with another $2,685 contracts at the $4.50 call strike. Peak put OI, meanwhile, totals 11,596 contracts at the $4.50 strike.
As of this writing, Joseph Hargett did not hold a position in any of the aforementioned securities.
