U.S. stock futures are down across the board this morning, as a negative reaction to Apple Inc.’s (NASDAQ:AAPL) quarterly earnings report has placed pressure on broad market sentiment. Apple beat fourth-quarter earnings estimates, but revenue came up shy and guidance wasn’t as bullish as many were hoping. Apple stock was down as much as 3% premarket.
Crude oil is also playing a spoiler this morning, with futures off 1.34% at $49.36.
Heading into the open, futures on the Dow Jones Industrial Average were last seen lower by 0.31%, while S&P 500 futures have shed 0.34% and futures on the tech-heavy Nasdaq-100 were down 0.43%.
Tuesday’s options activity came in well below average, with just 12.9 million calls and 11.4 million puts changing hands on the session. On the CBOE, the single-session equity put/call volume ratio rose to 0.69 while the 10-day moving average dipped once again to 0.63.
Providing the backdrop for Tuesday’s option volume, Apple calls flooded the options pits ahead of last night’s report, helping to boost sentiment expectations and set the stage for this morning’s selloff. General Motors Company (NYSE:GM) found itself in a similar situation yesterday, with call options remaining popular despite an earnings-related drop in GM stock. Finally, Twitter Inc (NYSE:TWTR) sold off hard following reports the company was laying off 8% of its staff.
Apple Inc. (AAPL)
After the close last night, Apple posted Street-beating earnings of $1.67 per share on $46.9 billion, versus the consensus estimate of $1.65 per share on $46.89 billion.
But, Wall Street’s actual target may have been much higher, with EarningsWhispers.com putting the whisper number at $1.75 per share, which Apple whiffed by a wide margin. What’s more, Chinese revenue fell sharply from $12.5 billion to just $8.8 billion.
Finally, while Apple said it sold 48 million iPhones, year-0ver-year sales of the popular smartphone still fell for the third straight quarter.
Options activity ahead of last night’s report was largely in line with the recent rise in expectations for Apple stock. Total volume came in at about 1.9 million contracts, with calls accounting for 64% of the day’s take. For short-term AAPL options traders, the more than 23,000 calls open at the Oct 28 series $120 and $118 strikes are in danger of expiring out of the money, while the 21,000 puts at the $115 strike in the same series are set to open in the money.
That said, these short-term $115 strike puts may want to close out their positions for whatever profit they can manage today. AAPL’s post-earnings selloff may not hold through Friday, as the shares have a tendency to bounce back from initial post-earnings losses.
General Motors Company (GM)
GM stock found itself in a situation similar to AAPL yesterday. General Motors also posted better-than-expected quarterly earnings, with a profit of $1.76 per share in the third quarter on revenue of $42.8 billion. The consensus was targeting earnings of $1.45 per share on sales of $39.29 billion.
Given the severity of the earnings beat, one might wonder why GM stock dropped more than 4% on Tuesday. The answer lies in a fear of a slowdown in U.S. sales (i.e. the economy) and sluggish growth overseas in Europe (where GM saw a $100 million loss) and China.
Options traders appeared not to buy into the malaise that plagued GM yesterday. Specifically, calls made up 75% of Tuesday’s total volume of 327,000 contracts for GM stock. Most of this activity was targeted at short-term closeouts and the opening of longer-term positions, as traders bank on a rebound for GM.
Among the biggest short-term winners are the more than 5,400 Oct 28 series $32.50 strike puts, which are now trading roughly a full point in the money.
Twitter Inc (TWTR)
Typically, when a company announces layoffs, it flies pretty well with investors, as it is a sign the company is cutting costs which should net some nice returns. For Twitter, however, the announcement that the company was laying off 8% of its staff was taken as another indication of how much trouble the struggling social media firm is in. The company was already feeling the sentiment pinch after all its potential suitors backed out of the bidding process.
However, there may be a light at the end of this tunnel for TWTR stockholders. According to reports this morning, Walt Disney Co (NYSE:DIS) has re-entered the fray, and may have already agreed on a price to buy Twitter.
Such a development would be a boon to yesterday’s TWTR call traders — and there were quite a few. Total volume rose to nearly 306,000 contracts, with calls snapping up 67% of the day’s take.
The focus short-term (i.e. the Oct 28 series) lies at the $18 strike, where nearly 16,000 calls are currently open. The $20 strike is just behind, with nearly 11,000 call contracts in residence. Should the Disney rumors play out this week, these call traders stand to gain big.
As of this writing, Joseph Hargett did not hold a position in any of the aforementioned securities.
