Wall Street is pointed higher heading into the open this morning, with the Dow Jones Industrial Average looking to post its sixth consecutive win as March options activity ramps up ahead of expiration.
The Dow turned positive for 2016 on March 11, and momentum appears to be holding heading into the weekend, driven by a dovish Federal Reserve monetary policy and a rally in oil prices.
Heading into the open, U.S. stock futures on the Dow were up 0.25%, while S&P 500 futures were higher by 0.25%, and Nasdaq Composite futures were up 0.17%.
Options volume was heavy on Thursday, with exchange-traded funds like the SPDR S&P 500 ETF Trust (NYSEARCA:SPY) seeing considerable demand. Volume should remain brisk today, with March options expiring after the close. Overall, the CBOE single-session equity put/call volume ratio extended its decline to 0.63, but the 10-day moving average edged higher to 0.71.
In equity options news, Apple Inc. (NASDAQ:AAPL) call option volume rebounded on Thursday after Citigroup analysts praised iPhone 7 growth potential in emerging markets. Meanwhile, Valeant Pharmaceuticals Intl Inc (NYSE:VRX) suffered heavy losses again after creditors indicated they would impose heavy restrictions on delayed earnings results. Finally, Netflix, Inc. (NASDAQ:NFLX) is attracting serious attention from technical traders this week.
Apple Inc. (AAPL)
Apple is seeing analyst confidence return on the iPhone lately, a development that has bullish implications for AAPL stocks and options. On Thursday, Citigroup analyst Jim Suva said that iPhone growth should resume when the company launches the iPhone 7 in September. Rising expectations for the iPhone 7 are a boon for Apple, which saw concerns that iPhone sales had peaked following extremely slow growth in the most recent quarter.
Options traders have picked up on analyst optimism this week, with call volume returning to normal levels on AAPL. Yesterday, the stock saw total volume of nearly one million contracts, with calls accounting for 60% of the day’s take.
Levels to watch today include the $105 and $106 strikes in the expiring March series. Currently, there are almost 58,000 calls at the $105 strike, with another 21,000 at the $106 strike. AAPL is trading near $106 in premarket action, placing both of these contracts on track to close in the money.
Valeant Pharmaceuticals Intl Inc (VRX)
Valeant was supposed to file its official quarterly results on March 15. While the company released preliminary results earlier this week, Valeant has yet to officially sign off on the quarter due to irregularities found during an internal audit. Making matters worse, Valeant is close to defaulting on $30 billion in debt, and the company’s creditors are looking to impose severe repayment restrictions on the firm for missing its earnings reporting deadline.
As a result, VRX stock fell another 11% on Thursday, driving another surge in options volume on the session. Some 571,000 contracts traded on VRX yesterday, with activity leaning slightly toward calls.
Looking beyond today’s March expiration, weekly March 24 series traders appear to have not caught up to VRX’s plunge yet, with the stock trading well below any serious option accumulations. In fact, the only level worth watching at the moment is the $30 strike call, where 1,445 contracts currently reside. I would expect March 24 series contracts to see heavy volume today and early next week.
Netflix Inc. (NFLX)
NFLX stock has attracted considerable attention this week, and it has little to do with the company’s slate of new content premiers. The shares have flirted with the $100 mark for a while, but the shares pushed hard to get north of this key resistance level post-market yesterday. Furthermore, on Wednesday, NFLX’s 10-day and 50-day moving averages completed a bullish cross — a technical indicator that often signals the start of an intermediate-term uptrend.
With the century mark in play and technical indicators pointing toward a rally, options traders have geared up for short-term gains on NFLX stock. On Thursday, the shares saw option volume rise to nearly 450,000 contracts, with calls reluctantly accounting for 53% of the day’s take.
NFLX is once again flirting with a breakout above $100 in premarket action — a move that could have serious implications for many March options traders. Currently, more than 46,000 calls and 39,000 puts are open at the March $100 strike. The next major upside accumulation in March lies at the $105 strike, where about 10,000 calls reside.
If NFLX can gain a cushion above $100, the stock has a good chance of putting the century mark behind it heading into next week.
As of this writing, Joseph Hargett did not hold a position in any of the aforementioned securities.
