The major market indices kicked off November with a strong start, as Wall Street cheered weak manufacturing data as a sign that the Federal Reserve may once again delay a rate hike at its next policy meeting. However, weakness has set in heading into the open, as U.S. stock futures on the Nasdaq Composite, Dow Jones Industrial Average, and the S&P 500 Index are all pointing toward roughly a 0.20% drop at the start of today’s trading.
Option volume slacked off on Monday, with activity arriving well below average despite a full docket of corporate earnings. Calls remained in the driver’s seat, with the CBOE single-session equity put/call volume ratio coming in at 0.58. The 10-day moving average, meanwhile, held at a nearly four-month low of 0.66.
Turning to equity options, bullish sentiment in Apple Inc.’s (NASDAQ:AAPL) options backdrop faltered a bit on Monday after Vetr downgraded AAPL stock. Elsewhere, General Electric Company (NYSE:GE) drew heavy put volume after the company announced it was acquiring France-based Alstrom’s energy business for $13.6 billion. Finally, Facebook Inc (NASDAQ:FB) is seeing brisk call option speculation heading into tomorrow night’s third-quarter earnings report.
Apple Inc. (AAPL)
Analysts at research firm Vetr downgraded AAPL stock to “buy” from “strong buy” late last week. However, the shares shrugged off the news in favor of reports that Apple is considering using an Intel Corporation (NASDAQ:INTC) modem and foundry services in its next iPhone. Neither company has commented on the report, and, with better options already on the table, many analysts are already discounting the likelihood of such a tie-up.
Turning to AAPL stock options activity, the security saw below average volume of 511,886 contracts change hands on Monday. Calls were the majority, accounting for 67% of the day’s take, but popularity has once again fallen off from pre-earnings levels. As for the rest of the week, traders should keep a close eye on $120.
This strike is home to heavy put and call open interest in the weekly Nov 6 series, with 21,049 calls and 10,945 puts currently open at this at-the-money option. Only the out-of-the-money $125 strike has more call OI, with 25,989 contracts residing overhead.
General Electric Company (GE)
GE stock saw a flood of put volume change hands on Monday, after General Electric announced it completed a $13.6 billion merger with Alstrom’s energy business. Under the terms of the deal, GE Power & Water will merge with Alstrom Power to become GE Power. The combined unit is forecast to bring in around $30 billion in revenue annually.
With puts flowing freely on GE, options traders are either protecting fresh long GE stock positions or betting on a dip in the stock following the deal. Volume on Monday swelled to 358,835 contracts, arriving just above average for the past month. Put volume was well above average, with these typically bearish bets accounting for 63% of Monday’s total.
Looking at weekly November 6 series options, the $29 strike could be hotly contested this week. The strike is home to peak put OI of 15,675 contracts, while 4,544 call contracts are also open here. Peak call OI, meanwhile lies overhead at the $30 strike, totaling 6,635 contracts. Given this OI configuration, GE stock may be range bound between $29 and $30 through Friday’s close.
Facebook Inc (FB)
Facebook is expected to post a third-quarter profit of 52 cents per share after the close of trading tomorrow night — up from 43 cents per share in the year-ago period. Revenue is seen rising 36% to $4.37 billion. Expectations may be a bit higher, however, as EarningsWhisper.com reports a third-quarter whisper number of 54 cents per share.
Options traders appear to be siding with the bulls ahead of Facebook’s report. On Monday, call options accounted for 67% of FB’s total volume of 247,962 contracts. A closer look at weekly Nov 6 series OI reveals heavy put and call OI at the $100 strike, with 12,581 calls and 10,758 puts current calling this round-number strike home. Meanwhile, peak call OI totals 19,393 contracts at the overhead $105 strike.
As of this writing, Joseph Hargett did not hold a position in any of the aforementioned securities.
