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Friday’s Vital Data: Apple, Advanced Micro Devices and Merck

Joseph Hargett

U.S. stock futures are trading higher this morning, putting the S&P 500 on course for record highs. Improving trade sentiment is helping lift stocks this week. White House officials have invited China back to the bargaining table to continue working on a trade deal.

Meanwhile, Hurricane Florence remains a significant concern. Though the storm was downgraded to a Category 1, it is still estimated to produce catastrophic flooding in the Carolinas. Property losses alone are expected to come in between $3 billion and $5 billion.

Heading into the open, futures on the Dow Jones Industrial Average are up 0.15%, with S&P 500 futures adding 0.15%. Nasdaq-100 futures are up 0.33%.

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In the options pits, volume remained well above average on Thursday. About 21.8 million calls and 14.6 million puts changed hands on the session. On the CBOE, the single-session equity put/call volume ratio dropped to a three-month low of 0.50 amid a swell in call activity. As a result, the 10-day moving average ticked lower to 0.61.

Options traders zeroed in on analyst actions yesterday. Goldman Sachs cut its earnings estimates on Apple (NASDAQ:AAPL), while FBN Securities started coverage on Advanced Micro Devices (NASDAQ:AMD). Finally, Merck (NYSE:MRK) saw options volume spike ahead of its ex-dividend date.

Let’s take a closer look:

Friday’s Vital Options Data: Apple, Advanced Micro Devices and Merck

Apple (AAPL)

Goldman Sachs lowered its 2019 earnings outlook for Apple following this week’s iPhone release event. The brokerage firm reiterated its “neutral” rating and said the new iPhones were priced lower than expected. The new LCD “XR” model “…effectively obsoletes two iPhone 8/8+ SKUs in our opinion and drives us to reduce our ASP and earnings estimates,” Goldman said.

AAPL stock options traders largely shook off Goldman’s concerns. Volume was brisk on AAPL options, rising to 897,000 contracts. Calls claimed an above average 64% of the day’s take.

However, this could once again be short-term profit taking activity from AAPL options traders. For instance, the October put/call open interest ratio comes in at 1.27. This reading is quite high for AAPL, and indicates that puts easily outnumber calls in the back-month series. In short, options traders are quite cautious with AAPL trading near all-time highs.

Advanced Micro Devices (AMD)

Before AMD stock dropped 5.4% to put in its worst session since June, the stock was actually headed higher. Helping to boost AMD in the early going was an initiation from FBN Securities, which started the stock at “outperform” with a $40 price target.

However, valuation concerns got the better of AMD stock. The shares sold off heading into the close on Thursday, as traders speculated that the stock had come too far too fast.

That didn’t deter AMD options bulls, however. Volume surged to 1.3 million contracts yesterday, with calls gobbling up 66% of the day’s take. Furthermore, unlike recent activity, it appears that many of these calls were the addition of new positions.

Specifically, the October put/call OI ration fell to a reading of 1.10 from yesterday’s perch at 1.14 — indicating that calls were added at a faster rate than puts. This also reverses a trend we saw earlier in the week, where call OI was falling on AMD. Maybe yesterday’s drop has finally shaken out the speculators, and AMD can once again turn higher.

Merck (MRK)

Merck has been a hot topic lately. The company recently announced that the FDA granted priority review to a supplemental biologics license application (sBLA) for its lung cancer drug, Keytruda.  With priority review status, Merck now expects a decision on Jan 11, 2019.

That said, the real reason that MRK options were on fire yesterday was a lot more mundane. Merck is trading ex-dividend today, and yesterday’s eye-popping surge in activity was targeted at capturing that dividend. On Oct. 5, Merck will pay out a dividend of 48 cents per share to shareholders of record as of the close yesterday.

Options volume, naturally was loaded with in-the-money calls as traders sought brief control of the shares to snap up that dividend. More than 214,000 contracts traded on MRK yesterday, coming in at more than 11 times the stock’s daily average. Calls claimed 96% of the day’s take.

As of this writing, Joseph Hargett held no position in any of the aforementioned equities.

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