U.S. stock futures are trading broadly lower, pushing the major market indexes toward their worst weekly losses since 2008. Rising interest rates and bond yields are the main theme behind the selloff so far.
However, Washington’s inability to pass a spending bill is creating an undue amount of uncertainty. Congress once again forced a government shutdown last night after failing to reach an agreement.
Against this backdrop, Dow Jones Industrial Average futures are down 0.5%, S&P 500 futures have lost 0.25% and Nasdaq-100 futures are up 0.27%.
Turning to the options pits, puts continued to dominate trading activity yesterday. Overall, about 22.3 million calls and 24.3 million puts changed hands on the session. The CBOE single-session equity put/call volume ratio spiked to 0.75. The 10-day moving average hit a three-month high, arriving at 0.65.
Taking a closer look at yesterday’s options activity, Apple Inc. (NASDAQ:AAPL) attracted heavy call volume following news that preorders for its just released HomePod have sold out. Elsewhere, Alibaba Group Holding Ltd (NYSE:BABA) call volume rose after the company dropped $486 million for a stake in a domestic big-data firm. Finally, Tesla Inc (NASDAQ:TSLA) continues to be dogged by Model 3 production concerns.
Apple Inc. (AAPL)
Let’s face it. Apple was late to the game with HomePod … really late. Luckily for Apple, however, the walled garden it has created around its devices and PCs left enough pent-up demand for the company’s Amazon.com, Inc. (NASDAQ:AMZN) Echo clone. So much so, apparently, that HomePod preorders have already sold out. However, as analysts have pointed out, it’s still too early to tell if preorder shortages are due to high demand or low product supply.
Options traders appear to be banking on the former. Emboldened by Apple stock trading near key support at $150, AAPL options traders piled into calls yesterday. Volume topped 591,000 contracts, with calls making up 64% of the day’s take.
What’s more, Apple’s March series has grown increasingly popular with options bulls. The March put/call open interest ratio has fallen from a reading north of 0.90 to its current perch at 0.69 in the past month. In other words, calls have been added at a faster pace than puts in the back-month series. This action typically indicates rising bullish sentiment, which Apple hasn’t seen for some time.
Alibaba Group Holding Ltd (BABA)
Alibaba has paid out $486 million for a 38% stake in Shiji Retail Information Technology Co. according to a filing on the Shenzhen stock exchange. Shiji Information provides software and data systems to hotel firms, retailers and entertainment companies. According to Shiji, the move is part of a “new retail” strategic cooperation designed to use big-data to shake up China’s huge retail market.
Alibaba stock options traders viewed the move positively. Volume rose to 339,000 contracts, with calls making up 58% of the day’s take. Yesterday marks the end of a streak for BABA stock that saw puts dominate options trading volume.
Looking out to the March series, it clear that there is still a ways to go for options sentiment. The March put/call OI ratio has risen from last month’s lows near 0.55 to its current reading of 0.68. As such, recent call volume might have been the result of position closures instead of actually bullish call adds. It will be a trend to keep an eye on for BABA bulls.
Tesla Inc. (TSLA)
Tesla reported earnings after the close on Tuesday that initially sparked a rally in the shares. Traders initially focused on the company’s better-than-expected cash positions.
That bullish sentiment faded fast, however, as Model 3 production delays continued to worry investors. In fact, Tesla only delivered 1,550 Model 3s in the fourth quarter, which is a little more than half Wall Street’s expectations.
Those worries deepened yesterday, sending the shares down more than 8% and driving mixed options volume. Roughly 240,000 contracts traded on TSLA stock yesterday, with puts and calls split down the middle.
Looking out to March, negativity is dominant. The March put/call OI ratio has risen to a near-term high of 1.44, with puts easily outnumbering calls in the series. In fact, peak call OI totals more than 5,500 contracts at the crucial $300 strike as traders place bets on technical support in the area.
As of this writing, Joseph Hargett did not hold a position in any of the aforementioned securities.