U.S. stock futures are trading flat to lower this morning, as Wall Street frets over the potential outcome of OPEC’s summit and the European Central Bank’s policy decision.
Other options on the docket today include the May private-sector employment report from ADP Inc. and weekly initial jobless claims data. Tomorrow brings the much-anticipated May jobs report.
Against this backdrop, futures on the Dow Jones Industrial Average have dipped 0.11%, S&P 500 futures stumbled 0.15% and Nasdaq-100 futures have dropped 0.13%.
Option volume slackened once again on Wednesday, as traders remained cautious ahead of Thursday’s and Friday’s wealth of economic data. Roughly 11.7 million calls and 10.1 million puts changed hands yesterday, with calls maintaining their lead for the week. Over on the CBOE, the single-session equity put/call volume ratio slipped to 0.55 on Wednesday, pushing the 10-day moving average to a two-month low of 0.64.
In equity option news, Apple Inc. (NASDAQ:AAPL) retreated further from overhead resistance at $100, and a downgrade from Goldman Sachs this morning could exacerbate the situation. Elsewhere, Alibaba Group Holding Ltd (NASDAQ:BABA) was hit by a rush of call volume after SoftBank Group Corp (OTCMKTS:SFTBF) said it was reducing the size of its BABA stake. Finally, Valeant Pharmaceuticals Intl Inc (NYSE:VRX) was also call heavy after setting a date for its first-quarter earnings conference call.
Apple Inc. (AAPL)
Apple has been getting quite a bit of grief lately for its perceived lack of innovation. On Wednesday, the shares continued to pull back from resistance in the $100 region, prompting options traders to rally behind calls on cries of bargain hunting. If they were looking for a rebound today, Goldman Sachs has some bad news.
Specifically, Goldman cut its AAPL price target to $124 from $136, citing slowing smartphone sales and lower iPhone unit growth. The brokerage firm also lowered its 2016 earnings by a penny to $8.39 per share based on 211 million iPhone unit sales.
Yesterday’s bargain hunting in the options pits saw AAPL attract 734,000 contracts, with calls snapping up 66% of the day’s take — sending call volume as a percentage of total daily volume to above-average levels. The $100 strike remains the focal point of weekly June 3 series open interest, with 28,000 calls and 17,000 puts, though the $99 level has now entered the picture with AAPL’s decline. A recovery this week could be a hard road for the stock.
Alibaba Group Holding Ltd (BABA)
It’s always something for Alibaba. After BABA stock finally broke out above $80 to challenge $82 last week, the stock was smacked more than 6% lower on Wednesday following news that SoftBank was decreasing its stake in the company. Softbank’s CEO Masayoshi Son made a $20 million bet on BABA in 2000 — a lucrative bet indeed. SoftBank now owns 32.3% of BABA shares, though the cut would drop that figure to 28%.
In addition to the sentiment hit on BABA from this story, investors are rightfully worried over potential share dilution once SunBank’s BABA holdings hit the market.
Still, calls were extremely popular on BABA on Wednesday. Some 471,000 BABA contracts changed hands yesterday, with calls accounting for 61% of the day’s take. Looking at June 17 series OI, the $80 strike could be a magnet for BABA, with 21,900 calls and 23,600 puts currently open — especially if the stock fails to put some distance between it and $80 ahead of June expiration.
Valeant Pharmaceuticals Intl Inc (VRX)
Investors don’t usually get this worked up over a simple earnings date announcement, but then most companies aren’t facing default or stiff creditor penalties for repeated delays in quarterly reporting.
Valeant stock jumped more than 4.5% on Wednesday after the company set June 7 as the date for its first-quarter conference call, well ahead of the current July 31 deadline creditors had set.
Options traders also jumped on the news, with calls accounting for 75% of the 262,000 contracts traded on VRX on Wednesday. Currently, call traders are focused on the weekly June 10 series $30 strike, with 2,600 contracts, and the $31 strike, with 4,500 contracts. Look for OI in the June 10 series to ramp up following yesterday’s news.
As of this writing, Joseph Hargett did not hold a position in any of the aforementioned securities.
