2 Stocks Rocked By Huawei Arrest

Plus, another analyst cuts Apple's iPhone estimates

by Andrea Kramer

Published on Dec 6, 2018 at 3:07 PM

U.S. stocks are in the red once again, as a high-profile arrest fuels concerns about U.S.-China trade. In fact, the detainment of Huawei Chief Financial Officer Meng Wanzhou in Canada -- on America's orders -- has sent shockwaves through the tech sector, weighing on optical components makers like NeoPhotonics Corp (NYSE:NPTN). In addition, Chinese app maker Momo Inc (NASDAQ:MOMO) is dropping after issuing a warning on macro headwinds, while FAANG stock Apple Inc. (NASDAQ:AAPL) is sliding on sector woes and more negative analyst estimates for the iPhone. Here's a closer look at what's moving the shares of NPTN, MOMO, and AAPL.

NPTN Eyes Worst Day in 2 Years After Huawei Arrest

NeoPhotonics stock has gapped 19.1% lower to trade at $6.26, making it the worst stock on the Nasdaq today. The company reportedly garners about half its revenue from Huawei, and the uncertainty surrounding the aforementioned arrest prompted B. Riley to downgrade NPTN to "neutral" from "buy," and slice its price target to $8.25 from $11.

NPTN shares are now pacing for their worst day since November 2016, and are set to close below their 200-day moving average for the first time since July. The security touched an annual high of $9.48 just over a month ago, but has since surrendered more than one-third of its value.

The stock is on the short-sale restricted (SSR) list today, and options premiums are soaring. NPTN's 30-day at-the-money (ATM) implied volatility (IV) was last seen 51.2% higher at 88.7%. However, some bears are exploiting pricey premiums. NeoPhotonics has seen about 4,300 calls change hands -- 35 times the intraday norm -- with sell-to-open activity spotted at the January 2019 7.50-strike call. By writing the calls to open, the sellers expect NPTN to remain south of $7.50 through January options expiration.

Momo Warns on Macro Headwinds

Most Chinese stocks are reeling on the Huawei scandal, and MOMO is no exception. The stock was last seen 15% lower to trade at $26.92, after the company said it expects the macro environment to remain challenging. The security is now exploring territory not charted since February, and has given up half its value since peaking at $54.24 in mid-June. It's set for its worst session since November 2017.

Momo stock, too, is on the SSR list, but option bears are active. So far, about 9,600 puts have crossed the tape -- five times the average intraday pace. It appears some traders are buying to open the December 25 put. Call volume is also accelerated, running at three times the norm, with about 17,000 contracts exchanged thus far.

Prior to today, bullish betting was picking up steam. Data from the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) shows MOMO with a 10-day call/put volume ratio of 8.24, in the 94th percentile of its annual range. This reveals a healthier-than-usual appetite for long calls over puts during the past two weeks.

More iPhone Concerns Plague Apple

Concerns about iPhone demand have plagued Apple for some time now, with several suppliers cutting guidance, and a handful of analysts lowering estimates. Rosenblatt Securities was the latest brokerage firm to weigh in, trimming its iPhone production expectations, and noting weaker-than-expected iPad Pro sales. Further, the analysts cut their price target on AAPL stock to $165 from $200, and said the Silicon Valley titan's 2019 earnings estimates are too high. Separately, UBS cut its price target to $210 from $225.

Apple shares were last seen 2.5% lower to trade at $172.35, and earlier fell as low as $170.42. Since hitting an all-time best of $233.47 in early October, the FAANG stock has dropped 26% -- into bear-market territory.

More negative analyst attention could be on the horizon for AAPL. Currently, half of the 28 analysts following the security maintain "buy" or "strong buy" opinions. Likewise, the consensus 12-month price target of $228.43 represents expected upside of about 33% from current levels.

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