The major market indices rebounded on Wednesday, despite yet another report that China’s economy was slowing faster than expected. However, Wall Street chose to focus on indications that the world’s second-largest economy was merely slowing and not crashing, as some had feared.
That said, stocks still put in their worst quarter in four years, with the Dow Jones Industrial Average shedding 7.6% over the past three months.
In the options pits, volume was relatively average on Wednesday, with call activity picking up at the end of September. On the day, the CBOE single-session equity put/call volume ratio fell to a three-week low at 0.95, while the 10-day moving average held at 0.78.
In equity options activity, Apple Inc. (NASDAQ:AAPL) continued to draw call activity after CEO Tim Cook revealed in an interview that Apple’s enterprise sales reached $25 billion within 12 months. Meanwhile, Dow Chemical Co (NYSE:DOW) was targeted by a favorable write-up at The Motely Fool, and Micron Technology, Inc. (NASDAQ:MU) calls were popular ahead of tonight’s quarterly earnings report.
Apple Inc. (AAPL)
In an interview with BOX CEO Aaron Levie, Apple CEO Tim Cook stressed that the company’s enterprise business was not a hobby. As evidence, Cook stated that the unit pulled in $25 billion in sales during the past 12 months. Cook also noted that Apple is looking to collaborate with IBM (NYSE:IBM) and hinted that even formerly bitter rival Microsoft (NASDAQ:MSFT) could “work on more things together.”
Despite yesterday’s buying spree on Wall Street, AAPL stock failed to make much headway against overhead resistance in the $110 region. This area also happens to be home to AAPL’s 10-, 20- and 50-day moving averages, creating multiple layers of technical resistance.
If that wasn’t enough, options activity has been brisk at the $110 strike among near-term traders. Overall, 874,834 contracts traded on AAPL on Wednesday, with calls accounting for 54% of the day’s take. Looking at tomorrow’s expiring weekly Oct 2 series, the $110 strike is loaded with open interest. Specifically, 12,282 calls and 15,914 puts currently reside at this weekly Oct $110 strike, creating additional turbulence in the region, and potentially delaying any upside potential until next week as these contracts play out.
Dow Chemical Co (DOW)
DOW stock outpaced Wall Street’s rally on Wednesday, with the stock jumping 4.5% on the session. A bullish write-up in The Motley Fool helped provide additional lift for DOW yesterday, providing five reasons for value investors to consider the stock. Among the reasons cited were DOW’s trading at a five-year-low price-to-earnings ratio, making the stock a considerable bargain given its increasing cash flow and falling debt.
Whether options traders agreed or were chasing the stock’s rally remains to be seen, but DOW saw record short-term volume of 239,842 contracts on Wednesday. Volume was near evenly split, but calls edged out puts just barely by snapping up 52% of the day’s take.
Heading into weekly October expiration, traders appear hopeful of a continued rally, with 1,406 contracts currently open at the $43 strike call. Put OI, meanwhile, is focused at the $42 strike, totaling 571 contracts.
Micron Technology, Inc. (MU)
Semiconductor concern Micron Technology will step into the earnings confessional after the close of trading this afternoon. Wall Street expects earnings to fall 60% year over year to 33 cents per share, with revenue set to decline 16% to $3.56 billion. Despite the poor year-over-year comparison, options traders loaded up on MU calls on Wednesday.
Volume swelled to 139,069 contracts yesterday, with calls accounting for 84% of Wednesday’s total volume. Weekly Oct 2 series implieds are pricing in a potential post-earnings move of about 9.8% at last check. Peak weekly call OI totals 6,758 contracts at the $17.50 strike, while peak put OI totals 6,398 contracts at the $13.50 strike — both strikes are just within striking distance of the expected move.
As of this writing, Joseph Hargett did not hold a position in any of the aforementioned securities.
