Happy New Year and welcome to 2017. With many traders feeling fresh after a long holiday break, January is set to kick off with a bang this morning. U.S. stock futures are pointing toward sharp gains across the board on Wall Street, with futures on the Dow Jones Industrial Average gaining 0.76%, S&P 500 futures up 0.79% and Nasdaq-100 futures rallying 0.83%.
On the options front, volume was understandably anemic on Friday, Dec. 30, with many traders looking for protection heading into the new year. On the session, about 12.1 million calls and 12.9 million puts changing hands. Over on the CBOE, the single-session equity put/call volume ratio hit a one-week high of 0.76, while the 10-day moving average rose to a one-month high of 0.67.
Turning to Friday’s volume leaders, Apple Inc. (NASDAQ:AAPL) call volume faltered yet again on reports the firm is cutting iPhone production in first quarter of 2017. Meanwhile, Bank of America Corp (NYSE:BAC) options traders are rolling out their January 2017 leaps positions at a bargain, while Tesla Motors Inc (NASDAQ:TSLA) was names as a top pick in 2017 by Baird.
Apple Inc. (AAPL)
According to the Nikkei Financial Daily, Apple is cutting iPhone production by 10% in the 2017 January-March quarter. While Apple has offered no comment on the report, the Nikkei says it has arrived at this conclusion by checking third-quarter supplier data. That said, the cut isn’t as deep as the 30% cut for the same period in 2016.
AAPL stock immediately reacted by selling off nearly 0.8% on Friday. The shares were already feeling a bit top heavy after hitting resistance in the $1116-$118 region — an area that had provided support for Apple stock in October.
In the options pits, AAPL options traders backed away from call activity on Friday. Total volume rose to 906,000 contracts for Apple, with calls only accounting for about 53% of the day’s take — well below AAPL’s usual call range of 63%-64%. Overall, put open interest has crept higher on Apple stock during the past several weeks, with the total January put/call OI ratio rising to its current perch at 0.79, indicating a growing concern that AAPL stock could meet with short-term weakness.
Bank of America Corp (BAC)
BAC enters 2017 riding high on promises for loosening regulations from President-elect Donald Trump and three interest rate hikes from the Federal Reserve in 2017. While evidence of both remain to be seen, this hasn’t stopped Bank of America stock speculators from ramping up bullish activity in the shares. In fact, BAC stock rallied more than 32% in the final two months of 2016.
With gains firmly under their belts, BAC LEAPS options traders were on the move Friday. Total volume rose to 686,000 contracts for BAC, with calls snapping up 67% of the day’s take. As for LEAPS traders, Trade-Alert.com reports that one trader rolled out 7,980 2017 Jan 20 series $15 strike calls into the 2018 Jan $19 series, for a total outlay of only 48 cents, or $48 per contract.
With these options trading more than seven points in the money, this roll-out appears to be quite a bargain — especially with BAC stock set for more gains this year.
Tesla Motors Inc (TSLA)
After being bashed for several months in the wake of its acquisition of SolarCity Corp (NASDAQ:SCTY), which is also owned by Tesla CEO Elon Musk, TSLA stock has begun to make a comeback. The shares rallied more than 12% in December to challenge resistance at $220 once again.
TSLA’s pullback to $215 at the end of the month prompted a bullish note from analysts at Baird, which named Tesla a top pick for 2017. According to Baird, “TSLA’s energy storage business and growth opportunity is not currently reflected in share prices.” Baird is banking on the coming Model 3, which will retail for $35,000, and improvements in battery costs to help push TSLA stock higher.
TSLA stock options traders have been reluctant to agree. On Friday, Tesla saw volume come in at 199,000 contracts, with calls only accounting for 53% of the day’s take.
What’s more, the total January put/call OI ratio has ballooned to a reading of 1.72, with puts nearly doubling calls among near-term options, indicating a lack of confidence that even Baird is having trouble overcoming.
As of this writing, Joseph Hargett did not hold a position in any of the aforementioned securities.
