U.S. stock futures are pointed sharply higher this morning, as Wall Street looks to end its longest losing streak since 1980. The “Trump Effect” slammed stocks lower for nine-consecutive sessions, but stocks are higher by more than 1.2% across the board in pre-market trading after the FBI said it found no additional evidence in the new Hillary Clinton emails, and therefore, recommended no charges be filed.
Now back on more certain ground, futures on the Dow Jones Industrial Average have rallied 1.33%, with S&P 500 futures jumping 1.38% and Nasdaq-100 futures soaring 1.59% heading into the open.
Ahead of the FBI announcement, Friday’s options activity remained mired in put territory amid heavy volume. Overall, 16.5 million calls and 18.7 million puts changed hands on the session. Over on the CBOE, the single-session equity put/call volume ratio pulled back once again, coming to rest at 0.70, though the 10-day moving average hit a six-month high of 0.74, underscoring the heavy pessimism of the past nine sessions.
Driving Friday’s action in the options pits, the nine-session selloff has led to bargain hunting on Wall Street, with Apple Inc. (NASDAQ:AAPL) and Facebook Inc (NASDAQ:FB) sitting front and center as stocks with the most bounce-back potential. Meanwhile, Pfizer Inc. (NYSE:PFE) is beginning to see call volume ramp up sharply ahead of the company’s Nov. 8 ex-dividend date.
Apple Inc. (AAPL)
Despite a rough couple of weeks, AAPL stock is far from dead. In fact, the recent selloff has left Apple stock ripe for bargain hunting, with the shares trading near oversold territory at technical support in the $110 region. As a result, AAPL has bounced back nearly 1.4% in pre-market trading this morning, with bargain hunting and a relief rally from the FBI’s Clinton report helping to push the shares higher.
That said, Friday’s options activity was still full of vinegar for AAPL stock. Total volume came in at an above average 1.13 million contracts, even as calls only accounted for a below average 54% of the day’s take. While you would think that the $110 strike would be a hotbed of activity heading into this week, the most active weekly Nov. 11 series put and call strikes are both well out of the money.
On the call side, peak open interest totals 10,200 contracts at the $115 strike, while peak put OI totals 18,700 contracts at the $107 strike. Unless AAPL stock makes a sustained comeback this week, technical traders may have an additional indicator for the bearish case — i.e., AAPL’s 10-day and 50-day moving averages are headed for a bearish cross.
Facebook Inc (FB)
FB stock arguably has a much better case for a comeback rally than Apple stock. Facebook sold off sharply following a solid third-quarter earnings report. In fact, the only caveat to Facebook’s report was that “its fourth quarter might not be as impressive as last year’s Q4.” Facebook didn’t lower guidance — it didn’t even say that Q4 wouldn’t be as good as the year prior, just that year-over-year comparisons wouldn’t be as great as last year. What ensued was panic selling.
Options traders even got in on the act. Friday’s total volume jumped to 756,000 contracts, with puts snapping up 53% of the day’s take — compared to FB’s typical daily breakdown where calls account for 64%-65% of total volume. Once again, more panic activity.
Judging by weekly Nov. 11 series OI, the worst may be over. FB is trading below both peak put and call OI strikes, with calls centered on the $124 strike (4,900 contracts) and puts focused at the $121 strike (9,800 contracts). FB is up 1.33% pre-market, so these puts are set to open out of the money, with an eye on the $124 strike potentially by the end of the session.
Pfizer Inc. (PFE)
With the selloff, poor earnings and poor guidance driving PFE more than 8% lower since late October, dividends may be the only reason to own the stock right now. And with Pfizer’s ex-dividend date scheduled for tomorrow, you can bet that we will see more deep out-of-the-money call activity on PFE stock today as traders implement dividend capture strategies.
Pfizer is slated to pay out a dividend of 30 cents per share on Dec. 1, to shareholders of record by the close of trading tomorrow.
As such, call options activity has started to ramp up on PFE stock. On Friday, the shares saw volume top 227,000 contracts, with calls accounting for 69% of the day’s take. A look at activity on Trade-Alert.com reveals a wealth of out-of-the-money call activity, indicating likely dividend capture plays.
The largest block, for instance, totaled roughly 27,000 contracts at the out-of-the-money February 2017 $32 strike. The options crossed at the ask price of 41 cents, or $41 per contract. Expect more of this kind of activity during today’s session.
As of this writing, Joseph Hargett did not hold a position in any of the aforementioned securities.
