Aside from a few outliers, don’t expect many big moves today, as Wall Street weighs its options ahead of the Brexit vote tomorrow. U.S. stock futures are trending higher premarket, but gains are muted. At last check, futures on the Dow Jones Industrial Average had gained 0.8%, S&P 500 futures were up 0.8% and Nasdaq-100 futures had added 0.17%.
Option volume is also trending lower ahead of the U.K.’s EU membership vote, as traders remain reluctant to make any big bets ahead of the event. Overall, 13.5 million calls and 10.4 million puts changed hands on Tuesday.
Turning to the Chicago Board Options Exchange, the single-session equity put/call volume ratio rebounded from a three-week low on Monday to arrive at 0.64 yesterday. The 10-day moving average held at 0.70.
In equity option news, Netflix, Inc. (NASDAQ:NFLX) draws ire after hiking prices for its streaming service. Meanwhile, Apple Inc. (NASDAQ:AAPL) options trader opens a large, short-term call-sell position on AAPL stock, and a Verizon Communications Inc. (NYSE:VZ) options trader looks for a 20% rally in VZ stock by January 2017.
Netflix, Inc. (NFLX)
Subscribers knew it was coming, but that didn’t stop NFLX stockholders from selling on the news. NFLX stock dropped 3% on Tuesday after Netflix began notifying subscribers of a price hike from $8.99 to $9.99 per month. Analysts at Nomura said the hike could cost Netflix 480,000 subscribers, offsetting the expected revenue gain from the hike. Nomura also cut its price target on NFLX to $115 from $125 as a result.
Options traders were active on NFLX following the news, sending nearly 270,000 contracts across the tape yesterday. Calls made up 56% of the day’s activity, indicating a slight positive bias from this speculative crowd.
That said, the overall sentiment among options traders remains bearish for the near-term, with NFLX’s June and July put/call open interest ratio arriving at 1.18, with puts outnumbering calls among options set to expire within the next two months.
Apple Inc. (AAPL)
We’ve seen the effects of Apple’s stock price woes and innovation troubles creep into its sentiment backdrop during the last several months, culminating in a double AAPL downgrade earlier this week. The sentiment picture didn’t get any better on Tuesday, as news that CEO Tim Cook was hosting a fundraiser for House Speaker Paul Ryan drew ire from Apple’s more activist-leaning customers.
For the canary-in-the-coal mine for AAPL stock, look no further than shifting sentiment in the shares options activity. Call volume as a percentage of total daily volume has fallen for some time, dropping to just 54% of yesterday’s 689,512 contracts. AAPL typically sees call volume in excess of 60% to 62% of daily activity.
What’s more, some of these calls are not as bullish as they appear. Checking in with Trade-Alert.com reveals that a block of 14,506 July 15 series $102 calls were sold for a bid price of 20 cents, or $20 per contract, yesterday. Call-sell trades are generally considered neutral-to-bearish for the underlying stock. The total position nets the trader a credit of $290,120, which the trader will keep as long as AAPL trades below $102 through July expiration.
Verizon Communications Inc. (VZ)
With the bidding war for Yahoo! Inc.’s (NASDAQ:YHOO) internet business and the FCC voting next month to open up 5G spectrum, 2016 is heating up for Verizon stock. The stock’s current rally appears to be taking it back to challenge overhead resistance at $55 — a technical hurdle that has capped all VZ breakout attempts for the last 16 years. But it is a situation that options traders believe is about to change.
Tuesday saw more than 177,000 contracts trade on VZ, with calls snapping up 69% of the day’s take. Hidden among yesterday’s call volume was a rather bullish January 2017 $60/$65 call spread. According to Trade-Alert.com, the spread — 15,000 $60-strike calls bought to open and 15,000 $65-strike calls sold to open — went off for an average ask price of 36 cents, or $36 per pair of contracts.
Breakeven lies at $60.63, with an impressive maximum profit of $4.64, or $464 per pair of contracts. In order to achieve that goal, the trader needs VZ to rally roughly 20% before these options expire in January next year.
As of this writing, Joseph Hargett did not hold a position in any of the aforementioned securities.
