U.S. stock futures are pointed lower heading into the open this morning, as Wall Street begins to digest the possibility of a Federal Reserve interest-rate hike in September. Late yesterday, San Francisco Fed President John Williams said he favors a rate hike “sooner rather than later,” while New York Fed President William Dudley hinted at a September hike earlier this week and the Atlanta Fed’s Dennis Lockhart discussed “at least one” more increase this year.
As a result, futures on the Dow Jones Industrial Average are down 0.24% at last check, while S&P 500 futures are off 0.26% and Nasdaq-100 futures have shed o.27%.
Options activity on Thursday came in just ahead of average for the past three weeks, with 14.2 million calls and 11.4 million puts changing hands on the session. Look for volume to ramp up considerably today and Monday, with monthly August 19 series contracts expiring at the end of trading this afternoon. Over on the CBOE, the single-session equity put/call volume ratio fell to 0.54, pushing the 10-day moving average to a one-month low of 0.58.
Analyst action was responsible for driving much of yesterday’s options activity. Specifically, Apple Inc. (NASDAQ:AAPL) was reiterated with an “overweight” rating at Piper Jaffray amid a flurry of bullish commentary. Meanwhile, Valeant Pharmaceuticals Intl Inc (NYSE:VRX) received a price-target increase at Canaccord, and Twitter Inc (NYSE:TWTR) was downgraded to “sell” at Evercore ISI.
Apple Inc. (AAPL)
AAPL stock is going to $151, according to Piper Jaffray, which reiterated Apple with an “outperform” rating. Analysts for the firm said they believe that “investors should own the stock for two shots on goal over the next year,” citing the potential for iPhone 7 sales to surprise and a potential “super-cycle” for upgrades among customers with two to three year-old devices.
Before Apple hits $151, the shares need to first topple short-term resistance at $109, and options traders appear hopeful for a near-term breakout. More than 590,000 contracts crossed the tape on AAPL stock yesterday, with calls accounting for an average 62% of the day’s take.
The $110 strike remains the focal point of the September series, with some 82,000 contracts currently open at this strike, though the $115 strike is gaining quickly in popularity, with open interest ballooning to more than 72,000 contracts in the past two weeks. If AAPL stock is able to pop above $110 next week following August expiration, it could bolster the case for $115 by September expiration.
Valeant Pharmaceuticals Intl Inc (VRX)
Debt is a major issue for Valeant Pharmaceuticals, and when the company announced that it has received permission from lenders for amendments to its credit facility, analysts at Canaccord jumped on the news. Specifically, Canaccord lifted its price target on VRX stock to $33 from $31 while reiterating the shares with a “hold.” According to the firm, Valeant must still “divest assets and execute operationally” before it can fully turn things around, but the amendments are a positive step.
Options traders agreed, as calls snapped up 60% of the nearly 547,000 contracts traded on VRX yesterday.
That said, even the target increase and bullish options activity wasn’t enough to keep VRX perched above $30 yesterday, which could be a blow to short-term price action. More than 18,000 calls are open at the $30 strike in August, with another 9,700 open in the September series. Peak September put OI, meanwhile, totals 6,500 contracts at the $20 strike.
Twitter Inc (TWTR)
Once it seems that Twitter stock has round its feet and is moving higher, the shares hit another stumbling block. Yesterday’s “block” arrived in the form of a downgrade to “sell” from “hold” at Evercore ISI, which cut its rating on TWTR stock citing Twitter’s lack of development in artificial intelligence learning — especially when compared to key competitor Snapchat.
Options traders appeared to remain optimistic, however, as calls accounted for 61% of yesterday’s total volume of roughly 361,000 contracts. The $20 strike remains key for TWTR options traders, with more than 37,000 calls and 14,600 puts calling the strike home in the September series.
With heavy option congestion in the $18 through $23 strikes through the next month, TWTR could remain range-bound here for a while — barring any other major developments, of course.
As of this writing, Joseph Hargett did not hold a position in any of the aforementioned securities.