U.S. stock futures have dipped lower in premarket trading, as Wall Street weighs its options ahead of today’s key employment data.
It’s more than just Federal Reserve watchers at this point, as today’s employment data from ADP could give an indication as to where Friday’s August jobs data will lead. Ultimately, a strong jobs report could give the Fed the ammo it needs to raise interest rates sooner rather than later.
Heading into the open, futures on the Dow Jones Industrial Average are off 0.05% and S&P 500 have slipped 0.02%, while Nasdaq-100 futures are also down 0.02%.
Tuesday’s options activity rebounded from Monday’s lackluster volume, as 11.4 million calls and 9.5 million puts changed hands on the session. Over on the CBOE, the single-session equity put/call volume ratio rose to 0.63, while the 10-day moving average stumbled to 0.63.
Providing fuel for Tuesday’s options activity, Apple Inc. (NASDAQ:AAPL) is on the hook for €13 billion following an EU tax ruling, while Facebook Inc (NASDAQ:FB) could make a tempting short play, according to Citron Research’s Andrew Left. Finally, Abercrombie & Fitch Co. (NYSE:ANF) put volume spiked to near-term highs following the company’s second-quarter earnings miss.
Apple Inc. (AAPL)
AAPL stock dipped 0.77% and saw a marked increase in put volume on Tuesday after EU regulators found that Apple owes €13 billion in back taxes. The figure represents roughly 20 years’ worth of unpaid taxes under an arrangement with Ireland that the EU commission said was the result of illegal state aid, where Apple paid a tax rate of 1% in 2003 and just 0.005% in 2014.
Option volume on AAPL rose considerably throughout Tuesday, with more than 763,000 contracts crossing the tape by the close. What’s more, sentiment took a serious hit, as calls only made up about 57% of yesterday’s volume — down from an average of 62%. AAPL stock has been in technical trouble since the shares were rejected at $110 in mid-August.
In addition to technical resistance, the $110 strike is also home to more than 91,000 call contracts in each of the September and October series of options. More importantly, however, is that peak put OI accumulations don’t emerge until the $100 mark, indicating that AAPL stock could have further to fall before its recent decline is spent. Watch for a breach of $105 for confirmation of an extended selloff.
Facebook Inc (FB)
You don’t usually see a lot of negative sentiment on Facebook. In fact, the last time the crowd began to grow restless on the social media giant, the company blew those fears away with an impressive quarterly earnings report. Which is why bearish comments from Citron Research’s Andrew Left caught more than a few investors off guard.
According to Left, FB stock will make “a tremendous short once the engagement numbers slip.” What’s more, Left believes those figures will begin to deteriorate in the next few years.
From a contrarian standpoint, Left made some compelling arguments, pointing out that FB stock only gained about 1.5% following blowout second-quarter earnings. “What would have happened if they came in in-line?” asks Left.
Options traders were more than a bit shaken by the bearish comments. Total volume arrived at nearly 340,000 contracts yesterday, with calls only accounting for 56% of the day’s take — down sharply from an average of 65%.
Looking at Sept 16 series options, the $125 strike is a big target for FB bulls, with more than 31,000 contracts in OI. However, the $130 strike has taken over the lead for peak call OI, accumulating more than 45,000 contracts.
Abercrombie & Fitch Co. (ANF)
ANF stock plunged more than 20% yesterday after Abercrombie offered up abysmal second-quarter earnings. For the quarter, the company said it lost 25 cents per share on revenue of $783.16 million, compared to expectations for a loss of only two cents per share on sales of $787.71 million.
Executive Chairman Arthur Martinez blamed CEO Michael Jeffries, saying, “We’ve moved on. I don’t think the world has.”
ANF call traders certainly moved on yesterday, as these typically bullish bets only made up 22% of the roughly 178,000 contracts traded. Following yesterday’s plunge, ANF is now trading just above peak September put OI, which totals 5,593 contracts at the $18 strike.
In the October series, only about 300 puts reside at $18, meaning there is little in the way of potential put support to stall an extended decline.
As of this writing, Joseph Hargett did not hold a position in any of the aforementioned securities.
