After getting blasted for a 2.5% loss across the board on Wednesday, Wall Street is looking rather cautious in premarket trading this morning. Global economic growth remains a concern, with China taking center stage. Additionally, crude prices are flirting with sub-$30 per barrel range, creating concern for the energy sector. At last check, U.S. stock futures on the Nasdaq Composite were off 0.07%, with S&P 500 futures up 0.15%, and Dow Jones Industrial Average futures up 0.17%.
Equity option volume rebounded amid Wednesday’s drubbing, with puts once again taking charge. Overall, the CBOE single-session equity put/call volume ratio rose to 0.91, while the 10-day moving average jumped to 0.8, its highest level since Sept. 1.
In equity option news, analysts at FBR Capital called the Apple Inc. (NASDAQ:AAPL) selloff “overreached” in a research note to clients, while ITG Research lowered its estimates on Netflix, Inc. (NASDAQ:NFLX) due to subscriber growth concerns. Finally, analysts at Morgan Stanley upgraded Microsoft Corporation (NASDAQ:MSFT) due to the company’s potential in the public cloud.
Apple Inc. (AAPL)
It’s no secret that Apple has been the target of a wave of bearish analyst notes during the past couple of months, with analysts lowering iPhone sales estimates. Analysts at FBR Capital, however, believe the selloff is “overreached.” According to FBR, the bar is set pretty low for Apple’s March quarter, and that “even a cab driver in New York City” is aware of low iPhone 6s demand.
Meanwhile, reports are surfacing that Apple may be interested in acquiring Time Warner Inc (NYSE:TWX) in a move to bolster the company’s streaming TV service. Neither company is commenting on the report.
On the options front, call volume has recovered a bit for AAPL stock, but remains just below average. Overall, some 1.3 million contracts traded on AAPL on Wednesday, with calls making up 60% of the total — just below the 62%-63% the stock typically draws.
Levels to watch for this week include the $97 strike in the January series, which is home to 9,584 put contracts and could offer up a modicum of support. Below that, there are 12,752 put contracts at the $95.71 strike that could help prop AAPL up on an extended decline.
Netflix, Inc. (NFLX)
Netflix stock plunged nearly 8.6% on Wednesday, giving back most of last week’s gains after ITG Research lowered its quarterly estimates on subscriber growth concerns. According to IGT, Netflix will report 1.13 million net user additions, well below the company’s own guidance of 1.3 million. As a result, ITG lowered its revenue projections from $1.265 billion to $1.251 billion.
NFLX’s options activity, which had been reversing toward a preference for calls, reverted toward a more neutral stance. On Wednesday, 482,554 contracts traded on NFLX, with calls garnering just over half of the day’s total activity.
Traders should keep an eye on the $107 region for NFLX this week, as it is home to roughly 3,700 calls and 5,800 puts. Meanwhile, $110 remains a sticking point, with nearly 7,000 calls and 14,000 puts in residence.
Microsoft Corporation (MSFT)
Microsoft stock received some much needed attention from the brokerage community on Wednesday. Analysts at Morgan Stanley upgraded MSFT to “overweight” from “equal weight” yesterday, citing solid growth for Office 365. Microsoft has made significant headway in the public cloud, which Morgan Stanley believes should pay off big for shareholders down the road.
Option activity was call-heavy for MSFT yesterday. Some 388,940 contracts changed hands on the equity, with calls snapping up 65% of the day’s take. Heading into 2016, MSFT was locked in a tight trading range near $55, but shares have since broken down to hover above support in the $50-$51.50 range.
Not surprisingly, levels to watch for MSFT heading into tomorrow’s January expiration include the $50 strike, where 144,829 calls and 60,380 puts reside. The $52.50 level could also come into play, with 57,157 calls and 46,611 puts currently open at this overhead strike.
As of this writing, Joseph Hargett did not hold a position in any of the aforementioned securities.
