U.S. stock futures are searching for a direction Wednesday morning, as Wall Street looks ahead of a pair of Federal Reserve speeches and the latest Fed beige book release. Later this morning, Richmond Fed President Jeffrey Lacker and Kansas City Fed President Esther George will testify before a House Financial Services Committee panel. That could offer insight into the central bank’s thoughts on monetary policy.
Interest-rate concerns have gridlocked futures on both the Dow Jones Industrial Average and the S&P 500, with futures down 0.01%, each. Futures on the Nasdaq-100, however, have added 0.16% ahead of Apple Inc.’s (NASDAQ:AAPL) press event, where the new iPhone 7 is expected to be unveiled.
Tuesday’s options activity shot higher as traders returned from a long weekend, sending 15.5 million calls and 11.1 million puts across the tape. Over on the CBOE, call trading was so brisk that the single-session equity put/call volume ratio plunged to 0.5 — its lowest level since July 2015. The 10-day moving average was dragged lower as a result, hitting 0.65.
Providing fuel for Tuesday’s options activity, analysts at Baird issued a rather bullish statement on Facebook Inc (NASDAQ:FB), while options traders ramped up their positions on Apple ahead of today’s press event. Finally, Alibaba Group Holding Ltd (NYSE:BABA) was flooded with call activity after shares blew past the $100 mark.
Facebook Inc (FB)
FB stock is once again set to challenge the $130 mark for fresh 52-week highs after Baird reiterated Facebook with an “overweight” rating. But Baird went more than a few steps beyond simply reiterating.
In fact, according to Baird, Wall Street’s “knee-jerk reaction to moderating ad load growth” is “short-sighted and ignores pricing and ad engagement.” Baird also noted that Instagram is in the early stages of monetization and that both WhatsApp and Messenger could be monetized at some point, further boosting Facebook’s bottom line.
Shares of FB jumped more than 2.5% following the commentary, setting up another showdown at $130. Options traders appear optimistic for a breakout. On Tuesday, volume swelled to 988,000 contracts, with calls snapping up 70% of the day’s take. What’s more, the $130 strike is home to peak call open interest in the September series, sporting more than 48,000 contracts. Another 28,000 calls are open at the $135 strike, hinting at potentially bullish call spread activity between the $130 and $135 strikes.
Apple Inc. (AAPL)
Only Apple knows what it’s going to announce at today’s press conference. But if it’s anything less than the unveiling of the new iPhone 7, AAPL stock traders may be in for a bad day. Other possibilities could an Apple Watch 2 reveal or a new Mac OS and an updated iPad. But with the iPhone still driving two-thirds of Apple’s revenue, it had better be the iPhone 7.
AAPL options traders shifted into high gear on Tuesday, sending more than 749,000 contracts across the tape yesterday. Furthermore, calls accounted for an above average 65% of the day’s take. That’s a fresh change for AAPL, which has seen calls dip to below 60% of daily average volume.
However, a closer look at Tuesday’s volume reveals some uncertainty.
Specifically, Trade-Alert.com data reveals that a 20,000-contract straddle was opened at the Oct $115 strike for the ask price of $8.56, or $856 per pair of contracts. Breakeven on the trade lies at $123.56 on the upside and $106.44 on the downside. The trade is clearly geared for a post-event decline in AAPL stock. A trader would need shares to rally nearly 15% just to hit breakeven on the upside.
Alibaba Group Holding Ltd (BABA)
BABA stock has drawn considerable attention from technical traders recently. Shares hit a fresh 52-week high last Friday, then broke out above the psychologically important $100 mark yesterday. With Alibaba stock set to challenge $105, it appears many traders have shrugged off questions about China’s growth and an SEC investigation.
Along those lines, options traders were particularly call heavy on Tuesday. Total volume jumped to 744,000 contracts, with typically bullish calls accounting for 73% of the day’s take. As a result of BABA’s recent rally, shares trade north of some 32,000 calls at the $100 strike in the September series.
As you would suspect, the $105 strike is next major hurdle for BABA shares, with about 43,000 calls currently open at this strike in the September series. Peak put OI for the series, meanwhile, totals just 14,000 contracts at the deep-out-of-the-money $95 strike, and likely represent put selling activity.
As of this writing, Joseph Hargett did not hold a position in any of the aforementioned securities.
