U.S. stock futures are down across the board, as Brexit fears continue to wash over Wall Street, with traders growing anxious over the long-term implications of the U.K.’s exit from the EU.
On the economic front, the latest minutes from the Federal Reserve’s June monetary policy meeting are on tap, along with the June purchasing managers’ index and the ISM nonmanufacturing reading.
Heading into the open, futures on the Dow Jones Industrial Average have shed 0.61%, while S&P 500 futures have fallen 0.68% and Nasdaq-100 futures are down 0.82%.
Options activity is down sharply from this time last week, but volume is still holding just above the previous three-week average with 13.6 million calls and 12.1 million puts changing hands on Tuesday. Over on the CBOE, the single-session equity put/call volume ratio jumped to a one-week high of 0.73 amid selling pressure on Wall Street. The 10-day moving average held at 0.70.
In equity option news, Bank of America Corp (NYSE:BAC) stock took a hit after Oppenheimer lowered its price target on the stock as part of a broader downgrade on several banking issues. Elsewhere, Apple Inc. (NASDAQ:AAPL) call option volume slipped after Citigroup cut its forecast for the iPhone maker. Finally, Netflix, Inc. (NASDAQ:NFLX) initially fell on a downgrade at Needham & Company but quickly recovered on news of a set-top box deal with Comcast Corporation (NASDAQ:CMCSA).
Bank of America Corp (BAC)
BAC stockholders had just finished cheering the results of last week’s Fed stress tests when Oppenheimer dropped its price target Tuesday morning. Bank of America upped its dividend by 50% and increased its stock buyback by $5 billion shares in the next year, but Oppenheimer’s target cut to $18 from $20 was all it took to sink BAC 2.75% on Tuesday.
Options traders appeared unphased by yesterday’s decline. Options volume came in at a healthy 595,000 contracts, with calls snapping up 64% of the day’s take. Call traders are heavily focused on the July 8 series $13.50 strike this week, with nearly 63,000 contracts current open at this weekly option.
By comparison, peak put OI for the July 8 series totals just 11,800 contracts at the $13 strike. With BAC looking to test the $12-$12.50 area by the end of the week, short-term puts appear to be smart money right now.
Apple Inc. (AAPL)
AAPL stock appeared to be on its way toward a recovery after hitting a low near $92 in late June. However, twin overhead resistance at the stock’s 20-day and 50-day moving averages coupled with Citigroup’s lowered Apple earnings forecast had other plans. On Tuesday, Citi lowered both its third-quarter and fourth-quarter earnings outlooks for Apple, citing potential fallout from the Brexit vote and macroeconomic uncertainty.
As a result, AAPL call options traders faltered once again. Overall volume on Tuesday came in at 536,000 contracts, with calls claiming a below-average 58% of the day’s take. While this may seem like a high figure percentage wise, calls typically account for 61%-62% of AAPL’s daily total option volume.
What’s more, AAPL’s July put/call open interest ratio has risen sharply in recent weeks to a perch at 0.96 — in the upper third of its annual range. Rising pessimism coupled with struggling price action does not bode well for AAPL stock going forward.
Netflix, Inc. (NFLX)
Netflix stock started Tuesday off in negative territory after Needham & Company downgraded NFLX to “hold” from “buy” on Brexit concerns. However, news emerged later in the day that Comcast subscribers would finally have Netflix access on their set-top boxes. The surprise news (Comcast and Netflix haven’t exactly been the best of friends in the past year) drove NFLX stock sharply higher.
The news also put options traders in a bullish mood. Overall volume came in at 410,000 contracts, with calls snapping up 66% of the day’s take. Tuesday’s activity is indicative of a recent shift in sentiment among speculative options traders on NFLX.
The stock’s July put/call open interest ratio has fallen recently, dipping from a perch above 1 two weeks ago to its current reading of 0.86. That said, Brexit still weighs heavily across the board, and this jump in optimism may be a bit premature.
As of this writing, Joseph Hargett did not hold a position in any of the aforementioned securities.
