U.S. stock futures are mixed heading into the open, as Wall Street faces another round of data before heading into the New Year’s break. Weekly jobless claims and November trade-balance data are on tap, and could provide additional pressure to stocks after yesterday’s 100-point loss on the Dow, pushing the 20,000 dream back into 2017.
Heading into the open, futures on the Dow Jones Industrial Average were last seen up 0.02%, with S&P 500 futures up 0.09% and Nasdaq-100 futures up 0.04%.
On the options front, volume recovered a bit on Wednesday, as those traders remaining on Wall Street looked to hedge their positions ahead of the New Year’s break. That said, activity was still anemic, with only about 10.3 million calls and 9.2 million puts changing hands. Running against the grain, however, the CBOE, the single-session equity put/call volume ratio dipped to another two-week low of 0.61. But that wasn’t enough to stop the 10-day moving average ticked higher once again to 0.65 — a one-month high.
Turning to Wednesday’s volume leaders, Apple Inc. (NASDAQ:AAPL) was targeted by a synthetic short amid continued below-average call volume. Elsewhere, Nvidia Corporation (NASDAQ:NVDA) reversed Tuesday’s gains following a bearish tweet from Citron Research, while Valeant Pharmaceuticals Intl Inc (NYSE:VRX) attracted some rather unusual deep out-of-the-money call selling activity.
Apple Inc. (AAPL)
With no major headlines and little in the way of potential drivers, AAPL stock appears to have once again stalled in the $117-$118 region. Apple shares hit a wall in this area back in October, ultimately rolling over and heading toward a low near $104 before finding a bottom.
This time, options traders appear to be looking for a repeat performance heading into 2017.
Total volume on AAPL stock came in at a respectable 683,000 contracts, despite the lack overall activity in the options pits. Call volume, meanwhile, only accounted for about 54% of the day’s take, arriving well below Apple’s daily average. What’s more, one trader in particular took out a rather large synthetic short position on AAPL stock.
Specifically, a block of 9,500 Jan 2017 series $110 puts were bought late yesterday at the ask price of 32 cents, according to Trade-Alert.com. At the same time, a block of 9,500 Jan 2017 series $110 calls were sold at the bid of $7.15. The trader netted a credit of $6.83, or $683 per pair of contracts, for the trade, and can realize a profit as implieds decline and AAPL stock stagnates.
Additionally, the trade has near unlimited downside potential, with the put gaining significantly in value if AAPL stock trades below $110 ahead of expiration, and unlimited upside risk due to the sold $110 call.
Nvidia Corporation (NVDA)
After surging more than 9% on Tuesday following a bullish research note from Pacific Crest, NVDA stock gave back most of those gains following an exceedingly bearish note from Citron Research. According to Citron, Wall Street is ignoring market headwinds that will push NVDA stock back to $90, including increased market competition and lower licensing revenue.
Options activity on NVDA was little changed compared to Tuesday’s action, with calls accounting for 54% of the 662,000 contracts traded in the Wednesday session. Furthermore, the total January 2017 put/call open interest ratio (which includes all January weekly series) ticked higher to 1.63, suggesting profit taking from call traders, and/or increased put activity.
For Jan 2017 series, peak call OI totals 6,900 contracts at the $100 strike, while peak put OI numbers 5,000 contracts at the $90 strike, as neither call nor put traders expect NVDA to move much higher.
Valeant Pharmaceuticals Intl Inc (VRX)
VRX stock has had a rough 2016, with the shares plunging more than 86% on the year. What’s more, Valeant shares are a far cry from their 2015 peak near $263, closing yesterday at a lowly $14.23 by comparison. The plummeting share price hasn’t deterred many VRX options traders, however, with the stock seeing volume of more than 241,000 contracts on Wednesday, where calls accounted for a whopping 89% of the day’s take.
But there was some exceedingly odd block activity on VRX yesterday. Trade-Alert.com data indicates that a large block of 45,000 VRX Jan 2017 series $27.50 calls were sold for a bid price of 2 cents, or $2 per contract. At the same time, a block of nearly 30,000 January $42.50 calls were sold for a bid of a penny, or $1 per contract.
This deep-out-of-the-money call selling on VRX could be the closure of a long-held bullish position, especially considering January LEAPS have been available for quite some time.
But the oddest element to this trade is that implied volatility for these options is through the roof at 115% and 162%, respectively. In other words, options traders are pricing in one heck of a move for VRX through January 2017 expiration. This is fortunate for the aforementioned trader, as it provides some return on exiting that long call play on VRX when these contracts would normally be worthless at this point.
As of this writing, Joseph Hargett did not hold a position in any of the aforementioned securities.
