Wall Street appears to be in a holding pattern heading into the open Wednesday morning. Stocks rallied sharply on Tuesday, as traders digested everything from falling oil prices to Federal Reserve monetary policy to a potential Santa Claus rally.
At last check, futures on the Nasdaq Composite, the S&P 500 Index and Dow Jones Industrial Average were trading flat-to-higher by an average of about 0.1%.
Options volume ramped back up on Tuesday, as traders prepared for a potential Fed interest rate hike later this month. Calls were once again the investment vehicle of choice, as the CBOE single-session equity put/call volume ratio fell to a one-week low of 0.61. The 10-day moving average dipped to 0.7.
On the equity options front, Apple Inc. (NASDAQ:AAPL) continued to draw heavy call volume in the wake of strong Black Friday sales, but one brokerage firm is warning of a potential slowdown.
Meanwhile, Bank of America Corp (NYSE:BAC) has become a top banking sector investment ahead of a potential shift in the Fed’s monetary policy, while Facebook Inc (NASDAQ:FB) was reaffirmed with a “buy” rating.
Apple Inc. (AAPL)
Black Friday was a banner day for Apple sales, with iPhones and Watches dominating online sales. However, at least one analysts is warning that the party may slow down come March. Per Detwiler Fenton analyst Jeff Johnston, March will offer up disappointing sales across the board for U.S. smartphone sales, and the iPhone could see a year-over-year decline in the March quarter.
The report seemed to only encourage AAPL option bulls, as volume spiked to an above average 449,132 contracts on Tuesday. Furthermore, calls accounted for 65% of the day’s take. Looking at weekly Dec. 4 series open interest, AAPL faces an uphill battle this week.
Specifically, roughly 17,700 call contracts are open at the $118 and $119 strikes, while more than 24,000 calls are open at the $120 strike. With AAPL stock hovering just north of $117, there is the potential for options-related resistance on any rally attempt this week.
Bank of America Corp (BAC)
Aside from being a solidly positioned banking stock in its own right, Bank of America’s stock has quickly become a favorite among traders looking to benefit from a potential shift in the Federal Reserve’s monetary policy. Dubbed “the most interest-rate sensitive bank,” BAC is expected to benefit significantly from higher rates associated with an end to the Fed’s current “zero” interest rate policy.
With a potential rate decision later this month, BAC options traders have ramped up activity during the past couple of weeks. On Tuesday, volume rose to a short-term high of 408,598 contracts, with calls raking in 79% of the take on the session.
For the weekly Dec. 4 series, BAC has bested heavy accumulations of both puts (30,746 contracts) and calls (33,750 contracts) at the $17.50 strike. However, there are still 40,216 call contracts located overhead at the $18 strike that could create issues. Furthermore, $18 is also a technical sticking point for BAC, though a convincing breakout above this level could spark a rally.
Facebook Inc (FB)
While news that CEO Mark Zuckerberg will give away 99% of his FB holdings is dominating the headlines at the moment, FB stockholders will be digesting conflicting analyst actions this morning. Yesterday, Barclays reaffirmed its “buy” rating on the shares in a research note to clients, while Vetr downgraded FB stock to “hold” from “buy.”
FB options traders weathered the storm in bullish fashion, with calls accounting for 70% of yesterday’s volume of 239,476 contracts. Taking a look at short-term activity, FB stock is trading north of peak Dec. 4 series call OI of 11,803 contracts.
The shares are still facing heavy call accumulations at the $108 and $109 strikes this week, but technical resistance near $110 could be a much bigger issues for FB stock traders.
As of this writing, Joseph Hargett did not hold a position in any of the aforementioned securities.
