Big Printin’ Apple (AAPL), Dominion (D) & Financial Select (XLF)

by Dan July 25, 2016 3:06 pm • Commentary

Apple (AAPL): On Friday’s Options Action on CNBC we took a look at the implied earnings move in Apple (AAPL) Prior to its fiscal Q3 report due tomorrow after the close. Watch our discussion here:

At the time the implied move was only about 4% in either direction. That’s moved up slightly today following an intra-day rating downgrade from BGC’s Collin Gillis from Hold to a Sell. Option volatility should continue to nudge higher into the close tomorrow.

Since the stock’s late April earnings gap following disappointing Q2 results and guidance, the stock has been range-bound between $100 and $90, right now trading at the almost exact mid point of the range since the day prior to Q2 results:

[caption id="attachment_65257" align="aligncenter" width="600"]From Bloomberg From Bloomberg[/caption]

No big prints caught my eye in AAPL today but the downgrade is interesting. As I detailed in the video, despite investors expectations being fairly low, Wall Street analysts (except Gillis) remain offsides given the stock’s 28% decline from last year’s all time highs, and what is clearly a well defined downtrend with the next level of support some $7.50 lower and then long term support in the mid $80s near the uptrend off of the 2009 lows.

Dominion Resources  (D): A long premium directional trade caught my eye in Dominion Resources. When D was trading $78.22 shortly before noon, 10,000 of the Aug 75 puts were bought to open for an average price of 53 cents. These puts break-even on Aug expiration at $74.47, down about 5% from the trading level.  The company is scheduled to report Q2 earnings on Aug 3rd.  The options market is implying about a 3% one day move, is rich to its 4 qtr avg move of 1.5%.  The stock of the utility company is up 16% ytd, having just broken out to a new 52 week high. This put purchase could offer dollar cheap protection for an existing long holder below key technical support. This is in a very strong sector and that’s why  found the trade interesting:

[caption id="attachment_65256" align="aligncenter" width="600"]From Bloomberg From Bloomberg[/caption]

Financials Select etf (XLF): Lastly, with the bulk of mega-cap U.S. bank earnings out of the way, and for the most part results better than low expectations, one of the largest options trades among sector etfs was in the XLF, the Financials Select etf.  When the etf was $23.57 a trader bought to open 32,500 of the March 2017 $22 puts for 96 cents to open. These puts break-even at $21.04, down about 11% from the trading level.

The etf is banging up against the downtrend from the 2015 highs, with fairly decent technical support between $21 and $22:

[caption id="attachment_65259" align="aligncenter" width="600"]From Bloomberg From Bloomberg[/caption]