It’s a bloodbath on Wall Street this morning. After two days of polls showing solid backing for “remain,” U.K. voters shocked everyone by voting to leave the European Union.
Stocks are down across the board, the U.S. dollar is up versus most of its foreign rivals, gold has added more than 5% to trade north of $1,300, and oil is down 5% at $47.69.
As for U.S. stock futures, Dow Jones Industrial Average futures have plummeted as much as 535 points, or about 3%, S&P 500 futures are down 80 points, or 3.8%, and Nasdaq-100 futures have cratered 167 points, or 3.75%.
Options traders, who’ve had their eyes firmly on the Brexit situation, were caught completely flat footed. Thursday saw a heavy bent toward call options, with 15.5 million calls and 12.3 million puts crossing the tape. Furthermore, the CBOE single-session equity put/call volume ratio plunged to 0.61, with calls taking command yesterday. Even the 10-day moving average retreated, arriving at 0.71.
In equity option news, Bank of America Corp (NYSE:BAC) drew heavy call volume not only on hopes for a “remain” vote in Brexit, but also for a passing grade in the Federal Reserve’s stress tests. Elsewhere, Apple Inc. (NASDAQ:AAPL) saw a continued rise in put activity after Canaccord cut its price target on AAPL stock. Finally, Micron Technology, Inc. (NASDAQ:MU) surged more than 10% after Susquehanna Group upgraded MU stock and lifted its price target.
Bank of America Corp. (BAC)
If not for Brexit, BAC stock might be up 2%-3% this morning. The Fed released Bank of America’s stress test results last night, and the results were positive across the board for the banking giant. In fact, most analysts believe that BofA could boost its dividend payout and increase its stock buyback program as a result — both of which are music to BAC stockholders ears.
That said, BAC stock is down more than 6% this morning as traders digest Brexit.
Heading into last night, options traders were quite bullish on BAC stock. Some 697,000 contracts changed hands on BAC, with calls snapping up 63% of the day’s take. Judging by premarket activity, traders will want to keep tabs on BAC’s $13 and $13.50 strikes. In the July 15 series, the $13 strike sports roughly 19,000 calls and 54,000 puts, while OI at the $13.50 strike is relatively light with 4,000 calls and 18,000 puts.
Apple Inc. (AAPL)
The sentiment backdrop for Apple just continues to worsen. On Thursday, Canaccord reiterated its “buy” rating, but slashed its price target on Apple stock to $120 from $130. According to the brokerage firm, recent survey data points toward slowing iPhone sales. This makes the third such bearish brokerage action in the past week for AAPL stock, with analysts forecasting falling iPhone and Apple Watch sales.
Options traders continued to favor calls over puts on Thursday, but the gap is narrowing fast. On the session, 557,000 contracts changed hands, with calls eking out just 54% of the day’s take.
Call traders are going to be disappointed this morning, as AAPL stock is headed toward a greater than 2.5% loss on the open, putting the shares below $93.50. As a result, AAPL is set to open below all major call OI strikes in the July 15 series. As for put OI, there are more than 20,000 contracts at the $92.50 strike and 30,800 puts at the $90 strike. If these puts were sold, there are sure to be some rather nervous options traders out there this morning worried about getting assigned.
Micron Technology, Inc. (MU)
Micron Technology stock appears to be holding up better than most this morning, with the stock off only about 3% at last check. MU soared more than 10% yesterday after Susquehanna Group upgraded MU stock to “positive” from “neutral” and lifted its price target to $18 from $10. The upgrade followed on the heels of Nomura’s upgrade to “buy” from “reduce” late on Wednesday.
MU options traders naturally flooded the stock with calls on Thursday. Total volume rose to more than 405,000 contracts, with calls accounting for a whopping 85% of the day’s take.
The recent attention to MU calls has pushed the stock’s July put/call open interest ratio sharply lower to a perch at 0.96. The shift toward bullish sentiment among options traders bodes well for MU, and could be a sign that the stock is set to break out of its long-term decline.
As of this writing, Joseph Hargett did not hold a position in any of the aforementioned securities.
