Wall Street is headed toward another session in the red this morning, as investors continue to weigh their options after the U.K. voted to leave the European Union after 43 years of membership.
At last check, U.S. stock futures on the Dow Jones Industrial Average were seen off 0.69%, S&P 500 futures were lower by 0.70%, and Nasdaq-100 futures had shed 0.80%.
After leaning toward call options heading into the Brexit vote, options traders flooded the market with puts on Friday. Overall, 22.4 million calls and 26 million puts changed hands on the session, with the SPDR S&P 500 ETF Trust (NYSEARCA:SPY) attracting record short-term volume of more than 12.4 million contracts (8.1 million puts).
Even the typically bullish CBOE saw heavy put volume on Friday. In fact, the single-session equity put/call volume ratio rocketed to 1.01 — its highest perch since January 15 — while the 10-day moving average rose to 0.73 — a one-month high.
In equity option news, Apple Inc. (NASDAQ:AAPL) saw increased put volume once again on Friday even as fresh photos of the iPhone 7 were leaked — missing a headphone jack. Elsewhere, Bank of America Corp (NYSE:BAC) has seen a sharp increase in activist investor activity, with many calling for a breakup of the banking giant. Finally, Alcoa Inc.’s (NYSE:AA) Australian partner, Alumina, filed a counterclaim in a U.S. court to block Alcoa’s split into two publicly traded companies.
Apple Inc. (AAPL)
AAPL stock followed market losses on Friday, with the shares falling 2.8% the day after the U.K. voted to leave the European Union. The losses come as no surprise to market watchers, but there was a distinct lack of hype surrounding the latest iPhone 7 leaks that could be of some concern for Apple investors.
The latest round of photos shows the newest Apple flagship phone with a dual camera lens and without a headphone jack. With the iPhone 7 reportedly already in mass production in China, more leaks like this should be on their way soon.
Options activity was light on call activity on Friday. Overall, roughly 1.4 million contracts traded on AAPL on Friday, with calls only eking out 52% of the day’s take. With AAPL off 0.4% in premarket trading this morning, look for puts to gain additional attention in today’s session. Overall, AAPL’s July put/call open interest ratio has risen to a near-term high of 0.92, as puts continue to gain favor.
Bank of America Corp. (BAC)
BAC stock was pounded for a loss of 7.4% on Friday, as Brexit drove fears of U.K. exposure for the global banking giant. In fact, the unexpected vote overshadowed BofA’s positive Federal stress test results that could lead to increased dividend payouts and a lift in Bank of America’s share buyback program.
There may be a new hitch developing in BofA’s backdrop, however, and activist investors have upped their acquisitions of BAC stock. A growing number of investors believe that BAC’s true value is hidden behind the complexity of the too-big-to-fail bank, and spinning off the investment banking arm of Merrill Lynch would unlock considerable potential.
Options traders were not deterred by Friday’s selloff, with calls making up 61% of the more than 1.1 million contracts traded on BAC. While the weekly July 1 $14 strike was the focus heading into the week, attentions have now shifted toward the $13.50 call (16,500 contracts) and the $13 put (17,500 contracts).
With BAC off 2% premarket, these weekly $13 puts are set to open in the money.
Alcoa Inc. (AA)
Since the company announced it was splitting in two last September, Alcoa has been a hotbed of speculation. The situation became even more complicated last week when Alcoa’s Australian partner, Alumina, filed a countersuit to block the split.
According to the suit, Alumina is seeking to prevent Alcoa from moving ahead with the split without its approval and that it be given the right to buy Alcoa’s interests in their joint venture, Alcoa World Alumina and Chemicals, if it chooses. The court has set a trial date of Sept. 20.
AA stock options activity has been brisk in recent months, driven by speculation and arbitrage activity. On Friday, AA saw 335,000 contracts change hands, with calls snapping up 68% of the day’s take. A big driver for Friday’s call activity appears to be an Oct 16 series short call spread position.
According to data from Trade-Alert.com, a block of 25,000 Oct 16 series $11 calls crossed at the bid price of 38 cents, while a block of 25,000 October 16 series $12 calls traded simultaneously for the ask price of 20 cents.
The result is a credit of 18 cents, or $18 per pair of contracts, which the trader keeps as long as AA closes below $11 when October options expire.
As of this writing, Joseph Hargett did not hold a position in any of the aforementioned securities.
