Stocks tread water last week, with selling pressure taking hold finally late Friday. As a result, the major market indices shed roughly 1% on the week, with the S&P 500 slipping 0.99%. The weakening mood drove cautious trading in the options pits as well, with the CBOE’s put/call volume ratio rebounding to 0.74. The 10-day moving average dipped to 0.61.
Earnings remained Wall Street’s hottest topic Friday, as speculation continued to climb on Apple Inc. (NASDAQ:AAPL) and investors weighed their options on General Electric Company (NYSE:GE). Meanwhile, Alibaba Group Holding Ltd (NYSE:BABA) saw activity in the options pits after it signed a deal with Shanghai General Motors to provide online sales and financing of GM cars.
Here, we’ll look at what investors should know about these stocks heading into Monday’s trading:
Apple Inc. (AAPL)
Apple is set to take the earnings stage next Monday, but that hasn’t slowed the rate of speculation on the company’s quarterly report. On Friday, Piper Jaffray analyst Gene Munster said that he expected revenue in line with the consensus at $55.6 billion, and that guidance will come in at the high end of expectations for the third quarter. Munster believes that iPhone 6 and iPhone 6+ sales offer potential upside, slowing the iPhone’s decline in global market share.
In the options pits, AAPL volume returned to its average baseline of the past several months following a dip in activity during most of last week. Overall, 1.2 million contracts were traded on AAPL stock, with 63% of that volume crossing on the call side. Looking at weekly May 1 series options (i.e., those that will be most affected by next week’s report), we find peak open interest at the overhead May $125 strike, totaling 125,660 contracts, while the May $125 put sports open interest of about 106,200 contracts.
Look for $125 to be a battleground heading into Monday’s report.
General Electric Company (GE)
Following its initial spike higher, GE stock has languished since the company announced the divestiture of most of its GE Capital unit. The company reported earnings last week that were largely ineffectual in moving the stock, with GE shares continuing to pullback to potential support near $27. Earnings were largely in line with expectations on Friday, but revenue fell well short of the mark.
Furthermore, GE failed to provide any significant updates on guidance, leaving investors no choice but to hold their positions for the time being.
Options activity remained consistent with last week’s brisk pace, as 198,565 contracts traded on GE stock. Furthermore, bullish sentiment also appeared to hold up, with 72% of Friday’s volume crossing on the call side. Taking a closer look, we find peak call open interest at the out-of-the-money monthly May $29 call strike, where 111,903 contracts are currently open. Peak put open interest meanwhile, is a pittance in comparison, totaling 20,475 contracts at the May $27 strike.
Alibaba Group Holding Ltd (BABA)
Outside the realm of corporate earnings, Alibaba made waves by further expanding its reach into the automotive sector. The company announced a deal with Shanghai GM on Friday to finance and facilitate online sales of GM cars. Currently, Alibaba offers Buick, Cadillac and Chevrolet brands on its Tmall.com website. The companies said they would deepen their collaboration by using Alibaba’s data to better serve ads to potential car buyers while offering them loans and additional services.
Sentiment in the options pits has grown more neutral toward BABA stock in recent weeks, and that opinion shown through on Friday. Overall, 238,627 contracts traded on BABA, with only about 51% trading on the call side. As a result, put and call open interest has drawn closer to parity for the front two months of options. Specifically, the put/call open interest ratio for this series rising from 0.77 at the beginning of April to its current perch at 0.88, as puts are added at a faster rate than calls.
As of this writing, Joseph Hargett did not hold a position in any of the aforementioned securities.
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