Another interest rate cut by the People’s Bank of China and strong earnings from the tech sector drove the major market indices higher on Friday. Led by strong results from Microsoft Corporation (NASDAQ:MSFT), Alphabet Inc. (NASDSAQ:GOOG, NASDAQ:GOOGL) and Amazon.com, Inc. (NASDAQ:AMZN), the Nasdaq Composite soared 2.27% on Friday. The Dow Jones Industrial Average brought up the rear with a gain of 0.90%.
Option volume was brisk on Friday, with activity coming in well above average due to corporate earnings and the expiration of weekly October 23 series contracts. On the CBOE, the single-session equity put/call volume ratio fell to a three-week low of 0.63, while the 10-day moving average remained at 0.72 — its perch for the past week.
In equity option activity, call volume is returning to Apple Inc. (NASDAQ:AAPL) with a vengeance, as options traders rush to position themselves ahead of tomorrow night’s quarterly report. Elsewhere, options traders on Microsoft and Amazon.com appear to be playing catch-up after both stocks surged following stronger than expected third-quarter results.
Apple Inc. (AAPL)
Following a 3% jump on Friday, AAPL stock is flirting with key resistance in the $120 region heading into tomorrow’s quarterly report. That technical hurdle could come under heavy fire today, after analysts at Maxim Group upgraded AAPL stock to “buy” from “neutral” while lifting their price target from $144 to $167 per share.
For earnings, Wall Street is expecting a profit of $1.88 per share on revenue of $51.11 billion.
Call volume was brisk on Friday, with these typically bullish bets accounting for 66% of the 1.3 million contracts traded on the day. The $120 strike will also be a key hurdle from an options standpoint for AAPL stock, as 29,021 contracts are currently open at this strike in the weekly Oct 30 series. Another 23,049 contracts are open at the $125 call strike, suggesting that call spread activity may be taking place at the $120/$125 strikes.
Microsoft Corporation (MSFT)
MSFT stock gapped nearly 10% higher on Friday after the software giant blew Wall Street’s third-quarter earnings expectations out of the water. For the quarter, Microsoft said it earned 67 cents per share on revenue of $21.66 billion, easily topping the consensus estimate for 59 cents per share on $21.03 billion in sales. Microsoft also said it cut 1,000 jobs in a move to further reduce costs.
Options traders were already call heavy heading into the report, but volume still reached record short-term levels for MSFT stock. In fact, calls accounted for 74% of the 649,543 contracts traded on Friday. The shares are now finding resistance in the $53-$54 region, but MSFT is trading firmly above peak call OI for the weekly Oct 30 series (30,852 contracts at the $49 strike and 26,307 contracts at the $50 strike), leaving the shares some wiggle room for consolidation this week.
Amazon.com Inc. (AMZN)
AMZN stock hit an all-time high on Friday, after the online retailing behemoth bested Wall Street’s earnings target by 7 cents per share. For the quarter, Amazon said it earned 17 cents per share on sales of $25.4 billion, versus the consensus estimate for 10 cents per share and sales of $24.9 billion.
Amazon has been criticized in the past for weak revenue and earnings figures, so the company’s second-consecutive earnings beat was a welcome sight for AMZN stockholders.
Option volume came in at record short-term levels for AMZN, which rarely makes appearances on the top 10 most active options listing. More than 252,000 contracts traded on AMZN on Friday, with calls accounting for 55% of the day’s take.
Heading into this week, AMZN is facing stiff technical resistance at $600, with 1,377 call contracts at the weekly Oct 30 series $600 strike muddying the waters. Another 5,953 contracts are open at the overhead $610 strike, which could come into play if AMZN can breakout later this week.
As of this writing, Joseph Hargett did not hold a position in any of the aforementioned securities.
