U.S. stock futures are largely piling on to yesterday’s losses, as Wall Street frets over the tightening presidential race. Recent polls indicate that Donald Trump has narrowed the gap between himself and Hillary Clinton, with at least one poll indicating Trump has a one-point lead. U.S. political news is even eclipsing concerns ahead of the Federal Open Market Committee’s (FOMC) decision on monetary policy, due later today.
Heading into the open, futures are awash in red, with Dow Jones Industrial Average futures down 0.15%, S&P 500 futures off 0.1% and Nasdaq-100 actually up slightly.
Tuesday’s options activity was dominated by put activity, as the major market indices fell to four-month lows. Overall, 15.4 million calls and 18.3 million puts changed hands yesterday.
Over on the CBOE, the single-session equity put/call volume ratio surged to a five-month high of 0.86, sending the 10-day moving average to a four-week high of 0.66.
Driving Tuesday’s options activity, Apple Inc. (NASDAQ:AAPL) was in focus as AAPL stock’s post-earnings retreat has pulled its short-term moving averages into a bearish cross. Elsewhere, Valeant Pharmaceuticals Intl Inc (NYSE:VRX) rebounded from criminal-probe losses on news that the company is in talks to sell its Salix gastrointestinal drugs business for as much as $10 billion. Finally, Bank of America Corp (NYSE:BAC) saw heavy options activity ahead of today’s FOMC decision on interest rates.
Apple Inc. (AAPL)
AAPL stock has been in a tailspin for the past week, with the shares breaching former support near $115 on Wednesday last week. Selling pressure increased following a pair of disappointing events, including a mediocre quarterly earnings report and a lackluster MacBook Pro event last week.
The lack of confidence in Apple has set the stock into near-correction territory, pulling its 10-day and 20-day moving averages into a bearish cross, and threatening to push AAPL below its 50-day moving average and support near $110.
Options traders have yet to give up hope, however. Tuesday’s session saw more than 1.4 million contracts change hands on AAPL, with calls making up an average 62% of the day’s take. Even more interesting was a rather large short-term bullish bet, highlighted in trading activity from Trade-Alert.com.
Specifically, a block of 15,000 November 18 series $125 AAPL calls crossed the tape yesterday around noon for the ask price of 3 cents, or $3 per contract. Taking the trade at face value, this block represents a $45,000 bet that AAPL stock will rally more than 12% before these options expire in a little more than two weeks on November 18. Quite a bullish bet, indeed.
Valeant Pharmaceuticals Intl Inc (VRX)
Valeant can’t seem to stay out of its own way this year. VRX stock was already on a steady decline since peaking near $32 in late August before reports that ex-CEO Michael Pearson and ex-CFO Howard Schiller were the focal point of a federal criminal probe. VRX plunged more than 23% on the news. But the shares bounced back yesterday after news surfaced that Valeant is in talks to sell its Salix business to Takeda Pharmaceutical Co Ltd for nearly $10 billion.
While options traders love volatility, the recent whipsaw activity by VRX has taken even speculative traders by surprise. Yesterday saw heavy options activity on VRX, with nearly 400,000 contracts crossing the take on the stock. Call managed to take the lead on the session, accounting for 58% of the day’s take.
Looking at weekly Nov 4 series activity reveals a wide spread of expectations from short-term traders. Peak open interest totals more than 9,000 contracts at the $24 strike put, with another 7,000 contracts at the $23.50 put. Beyond these strikes, however, the $18 through $24 strikes are littered with accumulations of 2,000 to 3,000 contracts, as options traders speculate on VRX’s reaction to the federal probe and the Salix sale.
Bank of America Corp. (BAC)
It’s Federal Reserve day on Wall Street, though, with the U.S. presidential race tightening considerably, you’d be hard pressed to tell. Bank of America traders are well aware, however, and will be watching Fed Chair Janet Yellen’s post-meeting speech for any clues as to when the next interest rate hike will occur.
In fact, BAC stock has marched more than 27% higher since the middle of the year, as traders anticipate a rate hike that could push investment revenue sharply higher.
Anticipation of a hike was plain in Tuesday’s options trading, where calls made up 60% of the more than 378,000 contracts traded on BAC stock. Additionally, Trade-Alert.com data revealed several large call blocks crossing on BAC ahead of today’ FOMC announcement.
The outlier, however, was a block of 7,500 January 2017 $15 strike puts that crossed at the bid of 27 cents, or $27 per contract. This position has a bullish-to-neutral lean, with the trader keeping the premium received as long as BAC holds north of $15 through expiration.
As of this writing, Joseph Hargett did not hold a position in any of the aforementioned securities.
