U.S. stock futures are headed higher once again this morning, as Wall Street seems relieved that the Federal Reserve didn’t raise interest rates at this week’s Federal Open Market Committee meeting. However, Fed Chair Janet Yellen did indicate that a hike is likely before the end of the year.
On the economic front today, weekly jobless claims, the August Chicago Fed national activity index, August existing home sales and August leading indicators are all slated for release later this morning.
Against this backdrop, futures on the Dow Jones Industrial Average have added 0.44%, while S&P 500 futures are up 0.44% and Nasdaq-100 futures have risen 0.5%.
Wednesday’s options activity was brisk, as traders reacted to the Fed’s decision to hold pat on interest rates for the time being. Overall, an above-average 17.8 million calls and 17.5 million puts changed hands on the session. On the CBOE, the single-session equity put/call volume ratio rose to 0.63, while the 10-day moving average rebounded to 0.65.
Analyst action provided the fuel for Wednesday’s options volume, with Apple Inc. (NASDAQ:AAPL) upgraded again on prospects for iPhone 7 unit sales, while Wells Fargo & Co (NYSE:WFC) was downgraded amid its latest fraud firestorm. Finally, Coty Inc (NYSE:COTY) options traders continued to pile into COTY after the stock was downgraded.
Apple Inc. (AAPL)
Apple received yet another upgrade in the wake of positive preorders reports for the iPhone 7. This time UBS lifted its price target on AAPL stock to $127 from $115; the consensus target is $124.91 according to Thomson/First Call.
While UBS said it doesn’t see demand for the iPhone 7 coming in better than the iPhone 6, the brokerage cited “encouraging Evidence Lab analysis of search volumes” for the target hike. Additionally, UBS said that Verizon Communications Inc. (NYSE:VZ) isn’t seeing the same preorder demand as its competitors, lending a bit of caution to the research report.
Options traders are also expressing a bit of caution on AAPL stock. Yesterday’s volume was strong, with 930,000 contracts changing hands. And while the fact that calls made up 63% of Wednesday’s activity would be a bullish indicator for most other stocks, for AAPL, it’s only par for the course.
Emphasizing the point, Apple’s September/October put/call open interest ratio currently rests at 0.90, which is high for AAPL and indicates that puts and calls are in near parity among options set to expire within the next two months.
Wells Fargo & Co. (WFC)
Wells Fargo has really stepped in it this time, with reports of account fraud drawing severe scrutiny from federal regulators and Senate hearings. With pressure mounting on the company, analysts are reevaluating their positions, and J.P. Morgan decided to lower its stance on the banking giant. Citing the rising maelstrom around Wells Fargo, J.P. Morgan cut its price target to $48 from $53.50 — a move that runs counter to upgrades from Morgan Stanley and R.W. Baird in the past two sessions.
The weight of the situation is even beginning to drag sentiment in the options pits lower. On Wednesday, WFC saw volume rise to nearly 428,000 contracts, with puts snapping up 58% of the day’s take. Short-term speculators have loaded up on out-of-the-money puts, with more than 12,000 of these bearish contracts accumulating at the $44 strike — a target that WFC could realistically hit before the close on Friday if the situation continues to escalate.
Coty Inc. (COTY)
Cosmetics company Coty has been a hotbed of speculation this week for options traders. The shares have plunged more than 19% since mid-August, but recently, COTY appears to be putting in a bottom near $24. Support in the $24 region was put to the test on Wednesday after Zacks downgraded the stock to “hold” from “strong buy.” Even Jim Cramer got in on the act, advising followers to sell COTY stock in favor of Procter & Gamble Co (NYSE:PG).
Options traders appeared slightly hopeful for COTY on Wednesday, however. Total volume came in at nearly 219,000 contracts, with calls snapping up 53% of the day’s take.
Looking out to October, call OI for COTY is focused on the $25 strike, where 2,500 contracts currently reside. By comparison, 3,800 puts are open at the October $24 strike for the same series.
As of this writing, Joseph Hargett did not hold a position in any of the aforementioned securities.
