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Tuesday’s Vital Data: AT&T, Apple and General Electric

Joseph Hargett

U.S. stock futures are trading broadly higher this morning. With the Fourth of July holiday tomorrow, trading volumes should be rather light today. As a result, the market will likely follow its positive bias into the close last night, with traders focusing on yesterday’s strong U.S. manufacturing data.

Tuesday’s Vital Data: AT&T, Apple and General Electric

Heading into the open, futures on the Dow Jones Industrial Average have gained 0.54%. Meanwhile, S&P 500 futures have added 0.39% and Nasdaq-100 futures have rallied 0.52%.

In options activity, we saw signs on Monday that traders are already taking off early for the Fourth of July. Volume was at its lowest point in months. Only about 13.9 million calls and 12.4 million puts changed hands on the session. On the CBOE, the single-session equity put/call volume fell to 0.58. The 10-day moving average held at 0.60.

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Options traders took note of potential currency headwinds for both AT&T (NYSE:T) and Apple (NYSE:AAPL) as the U.S. dollar continues to rally. Meanwhile, put options gained some ground on General Electric (NYSE:GE) after Morgan Stanley issued a bearish note on the company.

Let’s take a closer look:

Tuesday’s Vital Options Data: AT&T, Apple and General Electric Company

AT&T Inc. (T)

On Monday, Morgan Stanley added both AT&T and Apple to a list companies that could be negatively impacted by a strengthening U.S. dollar. For AT&T specifically, Morgan cited the company’s wireless business in Mexico and its DirecTV operations in Brazil.

Revenue from both, says Morgan Stanley, could face serious headwinds this earnings season. The dollar has strengthened against the Brazilian real and the Mexican peso.

Despite the concerns, AT&T options traders favored calls yesterday. Volume came in at nearly 123,000 contracts, with calls making up 65% of the day’s take. Diving into the activity, at least 10,000 of those calls were tied up in what appears to be a synthetic long position on T stock.

Specifically, Trade-Alert.com reports that a trader purchased 10,000 January 2019 $32 calls while simultaneously selling 10,000 January 2019 $30 puts. While there is a little bit of wiggle room here, this spread mimics the return of owning T stock, but with considerably heavier downside risks due to the sold (likely uncovered) put.

Apple (AAPL)

As for Apple, Morgan Stanley cited the Indian rupee and the plunging Chinese yuan. The rising dollar makes Apple’s products more expensive in these key markets, thus negatively impacting overseas revenue. Additionally, China’s yuan suffered its worst ever month against the dollar in June, notes Morgan Stanley.

Apple options traders appeared to take the situation a bit more seriously than AT&T’s traders. Volume rose to over 246,000 contracts, with calls making up an unusually low 54% of yesterday’s activity. Calls typically make up between 60% and 62% of Apple’s daily volume.

However, we may be seeing profit taking activity among Apple bulls. Specifically, AAPL’s July put/call open interest ratio has risen sharply in the past week to 1.03 from 0.76 last Monday. And that reading was up, again, from 0.67 in the week prior.

That’s a either a considerable buildup in put OI or a considerable decline in call OI. Either way, sentiment is shifting sharply on Apple, and not in a positive direction.

General Electric (GE)

JPMorgan warned yesterday that GE’s turnaround strategy would not result in a higher stock price for the firm. In fact, the brokerage firm said that GE stock remains “significantly overvalued.”

“Using sector average multiples, we see ~20% downside at current levels,” JPMorgan analyst Stephen Tusa said in a Monday note to clients. Tusa has an $11 price target on GE stock.

Options traders still favored calls despite Tusa’s warning. Volume came in at more than 154,000 contracts, with calls making up 59% of the day’s take. What’s more, GE has seen it’s July put/call OI ratio fall to 1.07 from Thursday’s reading of 1.10. In other words, GE options traders are continuing to bet on upside gains, despite warnings like those from JPMorgan.

As of this writing, Joseph Hargett was long General Electric Company (GE) stock.

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