U.S. stock futures are rallying once again, as anticipation grows ahead of key votes on the Republican tax plan. The House of Representatives is set to vote on the tax plan today, with the Senate expected to vote either today or tomorrow. Passage is expected in both houses, placing the bill on President Donald Trump’s desk to be signed before Christmas.
While passage of the tax plan is sure to add fuel to any Santa Claus rally next week, the overlooked retail sector may be the biggest beneficiary heading into next year.
Records for the major market indices could be in the making once again today, as futures on the Dow Jones Industrial Average are up 0.22%, with S&P 500 futures gaining 0.10% and Nasdaq-100 futures off 0.05%.
On the options front, volume continued to pour in ahead of the expected tax bill passage and next week’s Santa Claus rally. Overall, more than 24.5 million calls and 13.1 million puts changed hands on the session. Over on the CBOE, the single-session equity put/call volume ratio fell to 0.50, pushing the 10-day moving average back to a reading of 0.58 — its lowest level in more than a year.
Turning to Monday’s options activity, Apple Inc. (NASDAQ:AAPL) attracted relatively normal volume yesterday, though a rare downgrade this morning from Nomura Instinet could create volatility in today’s trading. Elsewhere, Twitter Inc (NYSE:TWTR) scored a pair of upgrades on Monday, driving heavy call volume on TWTR stock. Finally, Intel Corporation (NASDAQ:INTC) was part of a cadre of chip stocks benefiting from a bullish tech research note from Jefferies.
Apple Inc. (AAPL)
AAPL options volume was par for the course on Monday. More than 544,000 contracts traded on Apple, with calls accounting for an above average 65% of the day’s take. With the Republican tax bill likely to get signed this week, Apple stands to gain significantly — especially from repatriation of significant offshore cash holdings.
However, analysts at Nomura Instinet downgraded AAPL stock to “neutral” yesterday. According to the ratings firm, positives from Apple’s iPhone X and it’s growing services revenue are already baked into the stock. Furthermore, Nomura also believes that cash repatriation is also already priced into Apple stock.
As a result, AAPL stock is trading roughly 0.8% lower in premarket activity this morning. Additionally, traders should expect a rise in put activity in today’s trading, with the popular January 2018 $170 strike a likely target. This back-month strike already sports more than 138,000 AAPL put contracts, and could gain additional open interest on this morning’s news.
Twitter Inc (TWTR)
What could be just as unexpected as an AAPL downgrade? How about two Twitter upgrades. Both JPMorgan and Summit Redstone upgraded TWTR stock to a “buy” yesterday, with both citing growth potential for both ad revenue and active daily users. According to JPMorgan, both of these factors will help push Twitter “GAAP profitable in 2018 … even after increasing investments, as it benefits from revenue-driven margin expansion.”
The pair of upgrades were music to TWTR bulls’ ears, and speculators flooded the shares with call options. Volume topped 327,000 contracts on Monday, more than quadrupling TWTR’s daily average. Furthermore, calls gobbled up 85% of the day’s take.
Looking out to January 2018, we find that optimism already has a firm grip on TWTR stock heading into the new year. Currently, the put/call OI ratio for January 2018 rests at 0.54, with bullishly oriented calls nearly doubling their put counterparts. Peak call OI for the series totals more than 69,000 contracts at the just overhead $25 strike.
Intel Corporation (INTC)
If you’ve kept up with sector rotation in the past month, you’d be led to believe that semiconductor stocks, and tech stocks in general, are on the way out. Not so says Jefferies. The ratings firm issued a bullish note on semiconductor stocks yesterday, noting that while some capital spending may plateau in 2018, chips still had plenty of demand for new gear, with Intel among the biggest beneficiaries.
The bullish note kicked off a 3.8% rally for INTC stock, and sent options traders scrambling for calls. Volume topped 203,000 contracts, nearly tripling Intel’s daily average, while calls snapped up 78% of the day’s take.
A bullish outlook was clearly not in INTC speculators’ plans, as the January 2018 put/call OI ratio rests at 1.47 and is dominated by out-of-the-money put contracts. Should more analysts come out to back Jefferies analysis, you can expect this sentiment picture to improve rapidly.
As of this writing, Joseph Hargett did not hold a position in any of the aforementioned securities.