U.S. stock futures are pointed broadly lower this morning, as traders attempt to shake off news that North Korea has successfully carried out a fifth nuclear test.
Wall Street will also get another dose of Federal Reserve commentary today, with Boston Fed President Eric Rosengren speaking at the South Shore Chamber of Commerce in Boston and Fed Gov. Daniel Tarullo appearing on CNBC later this morning.
Against this backdrop, futures on the Dow Jones Industrial Average have fallen 0.27%, S&P 500 futures are off 0.24% and Nasdaq-100 have shed 0.22%.
Thursday’s options activity was unusually brisk, as 15.3 million calls and 12.8 million puts changed hands. Over on the CBOE, the single-session equity put/call volume ratio edged higher to 0.61, while the 10-day moving average slipped to 0.64.
Providing fuel for Thursday’s options activity, Apple Inc. (NASDAQ:AAPL) saw its rating and valuation range cut by analysts at Wells Fargo in the wake of Wednesday’s iPhone 7 reveal. Elsewhere, Rite Aid Corporation (NYSE:RAD) soared nearly 6% following signs that the company’s merger with Walgreens Boots Alliance Inc (NASDAQ:WBA) would be allowed to proceed. Finally, Advanced Micro Devices, Inc. (NASDAQ:AMD) has plunged more than 20% in the past three sessions due to share dilution concerns following a debt and share offering announcement.
Apple Inc. (AAPL)
While the iPhone 7 reveal was nothing spectacular, the majority of analysts on Wall Street seemed to indicate that Apple received at least a passing grade going forward. Most, but not Wells Fargo analyst Maynard Um, who downgraded AAPL stock to “market perform” from “outperform” and cut his valuation range from $115 to $125 to $105 to $120 per share.
Um believes that the iPhone 7 reveal was largely expected and already priced into the shares. As such, Um says that AAPL stock will be range-bound for a while.
Given yesterday’s surge in call volume, AAPL options traders apparently disagree. More than 1.7 million contracts crossed the tape on AAPL stock, with calls accounting for an above average 67% of the day’s take. The bump in confidence came even though AAPL shed 2.6% yesterday, retreating to the lower end of Um’s range.
Looking at September options, some 48,000 call contracts are open at the $105 strike, with 93,000 calls residing at $110 and peak call OI of 109,000 contracts open at the $115 strike.
Rite Aid Corporation (RAD)
It’s been nearly a year since Rite Aid and Walgreens Boots Alliance announced plans to merge, but the deal has stalled due to concerns that such a merger would be anti-competitive for consumers. To move the deal forward, Walgreens said it would sell or close 500 stores, but reports say that number is likely to be closer to 1,000 RAD stores in order to make the merger happen.
While RAD stock responded with a nearly 6% rally, RAD options traders countered with a flood of put contracts. Total volume on the session rose to a near-term high 571,000 contracts, with puts accounting for an impressive 86% of the day’s take.
Checking with data from Trade-Alert.com reveals that most of yesterday’s action took place at the January 2017 $6 and $4 strikes. Specifically, blocks totaling nearly 70,000 contracts crossed simultaneously for the ask on the $6 strike and the bid on the $4 strike put for what appears to be a $1.75 million put-spread bet that RAD stock will fall below $6 per share before January 2017 expiration.
Advanced Micro Devices, Inc. (AMD)
On Sept. 7, Advanced Micro Devices shocked stockholders by announcing that it will be issuing $600 million of AMD stock and selling $450 million worth of convertible debt. The news hit shareholders hard, and AMD stock dilution concerns have forced the shares more than 20% lower in the past three sessions, with AMD plunging another 9% on Thursday.
Options traders have been divided so far, though puts appear to be gaining a slight edge of late. On Thursday, some 348,000 contracts traded on AMD, with puts snapping up 52% of the day’s take.
The news has prompted serious short-term speculation among options traders, with OI at the weekly September 9 series $7 and $6.50 put strike rising sharply to 19,000 and 13,000 contracts, respectively.
By comparison, the monthly September 16 series has yet to catch up, with only about 6,000 puts open at the $6.50 strike. With weekly options expiring at the close today, look for many of the September 9 contracts to roll out to next week or further out into October.
As of this writing, Joseph Hargett did not hold a position in any of the aforementioned securities.
