U.S. stock futures are once again waffling on the Federal Reserve and oil, with stocks set for a negative open later this morning. Another raft of Federal Reserve speakers are on tap today, while investors continue to digest a report from The Wall Street Journal that the Organization of the Petroleum Exporting Countries (OPEC) reached an “understanding” for limiting crude production.
Finally, economic data today includes weekly jobless claims, second-quarter GDP, August advance trade goods and August pending-home sales data.
Plagued by another bout of data brain freeze, futures on the Dow Jones Industrial Average have slipped 0.16%, with S&P 500 futures down 0.17% and Nasdaq-100 futures off 0.17%.
Wednesday’s options activity bounced back to above average levels, as 15.2 million calls and 13.1 million puts changed hands on the session. On the CBOE, the single-session equity put/call volume ratio ticked higher to 0.65, while the 10-day moving average rose to 0.64.
Driving Wednesday’s options volume, Apple Inc. (NASDAQ:AAPL) was targeted by a rare downgrade from CM Research yesterday, while Twitter Inc’s (NYSE:TWTR) rating was cut by at least two brokerage firms. Elsewhere, Canaccord and Morgan Stanley both cautioned against owning Nike Inc (NYSE:NKE) stock despite the company’s solid quarterly earnings report.
Apple Inc. (AAPL)
Apple has seen a flurry of upgrades and price-target increases during the past couple of weeks due to strong iPhone 7 preorders. However, CM Research CEO Cyrus Mewawalla sees things quite differently. Mewawalla, who has maintained a “buy” rating on AAPL stock for five years, issues a “sell” rating on Apple yesterday saying “… right now we think there’s a gap between the next big blockbuster product and maturing iPhone sales. That means that there’s more downside than upside at the moment.”
Options traders were quick to disagree, as calls accounted for 66% of the more than 932,000 contracts that changed hands on AAPL on Wednesday. Still, Apple was unable to push past resistance at its 50-day moving average on the session — a development that could signal waning buying pressure.
As for options traders, this week’s biggest call plays may be a bust if AAPL doesn’t find legs before the close tomorrow. Currently, the weekly September 30 series has significant call buildups at the overhead $114, $115 and $116 strikes, with each sporting OI of more than 15,000 contracts (the $115 strike has more than 28,000 open calls).
Look for hedges related to these calls to apply some pressure to any AAPL rally heading into the close tomorrow.
Twitter Inc (TWTR)
Since the potential for a buyout broke earlier this week, the list of potential Twitter suitors has grown to include Alphabet Inc (NASDAQ:GOOG, NASDAQ:GOOGL), Salesforce.com, Inc. (NYSE:CRM), Walt Disney Co (NYSE:DIS) and Microsoft Corporation (NASDAQ:MSFT).
And yet, all remains quiet in terms of actual buyout bids for the social media firm. As a result, both Mizuho Securities (“neutral” to “underperform”) and Loop Capital (“hold” to “sell”) downgraded TWTR stock yesterday, pushing the shares to a 3.2% loss.
Speculative options traders were still holding out hope for a deal, however. Total volume for TWTR rose to 462,000 contracts, with calls snapping up 57% of the day’s take.
The out-of-the-money $24 and $25 call strikes remain the most popular for the weekly September 30 series, with OI of 15,000 and 12,000 contracts, respectively. However, the more than 21,000 $22 strike puts are beginning to look like smart money as TWTR drifts lower heading into tomorrow’s close.
Nike Inc (NKE)
Nike’s recent earnings had the makings of a solid quarterly report. Earnings came in at 73 cents per share, topping expectations for 56 cents per share, and revenue grew 8%. But orders through January came up short of year-ago levels, expected to rise only 5% compared to 9% last year. That lack of growth prompted both Canaccord and Morgan Stanley to caution investors about owning NKE shares, saying that it made it unlikely for Nike to hit its currently full-year guidance.
NKE stock fell almost 4% following the commentary, but options traders were not deterred. Total volume came in at nearly 340,000 contracts, with calls accounting for 57% of the day’s take.
Still, short-term NKE call traders who snapped up the weekly September 30 series $57.50 strike (all more than 12,000 contracts) may be a bit disappointed, as it would take a considerable rally to push these contracts into the money. There is still hope for the 25,000 October $60 strike calls, however, as NKE appears to be bouncing back a bit this morning — offering a positive sign that knee-jerk selling may have already tapered off.
As of this writing, Joseph Hargett did not hold a position in any of the aforementioned securities.
