Driven by an impressive cadre of corporate earnings reports, the major market indices surged on Thursday. Blue chips led the way, with McDonald’s Corporation (NYSE:MCD) soaring 8.1% after blowing past consensus targets, while Caterpillar Inc. (NYSE:CAT) added nearly 2% after results were not as bad as many had feared. On the day, the Dow Jones Industrial Average added 1.87%, while the Nasdaq Composite brought up the rear with a gain of 1.65%.
Option volume remained strong on Thursday, with call activity ramping up amid several strong quarterly earnings reports. On the CBOE, the single-session equity put/call volume ratio slipping to a one-week low of 0.66, while the 10-day moving average, meanwhile, held firm at 0.72 for the sixth-consecutive session.
In equity option activity, Microsoft Corporation (NASDAQ:MSFT) drew heavy call volume ahead of last night’s quarterly earnings report, while McDonald’s was also popular with call traders following better-than-expected third-quarter results. Finally, American Express Company (NYSE:AXP) options traders piled into puts after the company missed both top and bottom line projections.
Microsoft Corporation (MSFT)
MSFT stock rose nearly 2% on Thursday ahead of last night’s trip to the earnings confessional. Judging by the stock’s 10% gain in pre-market trading, investors liked what they saw.
For the quarter, Microsoft said it earned 67 cents per share on revenue of $20.38 billion. The consensus was expecting earnings of roughly 58 cents on revenue of $21 billion.
Heading into the report, options volume was brisk, with 444,138 contracts crossing the tape on MSFT on Thursday. Furthermore, calls ate up 69% of the day’s take. With MSFT trading near $53 in premarket activity, traders will want to keep a close eye on option activity at the weekly Oct 23 series $52.50 and $53.50 call strikes — both of which sport OI of roughly 400 contracts. The $50 level should act as support for any intraday weakness in MSFT stock.
McDonald’s Corporation (MCD)
McDonald’s investors were lovin’ it yesterday, as the stock surged more than 8% following a solid quarterly performance. The burger baron said it earned $1.40 per share on revenue of $6.62 billion in the third-quarter, easily topping Zacks expectations for earnings of $1.27 per share on sales of $6.44 billion.
Providing additional fuel for the fire, McDonald’s also announced that its board approved a 10% hike in its quarterly dividend.
Chasing the rally, MCD options traders pushed volume to a short-term high of 129,092 contracts on Thursday, with calls accounting for 59% of the day’s activity. MCD is currently trading with little in the way of overhead options-related resistance, having eclipsed heavy October call OI at the $107, $109, and $110 strikes.
The last potential hurdle for today’s trading may be the $112 strike, where 2,223 calls reside in the Oct 23 series.
American Express Company (AXP)
Not everything turned up roses for blue-chip stocks on Thursday, as AXP shares gave up 5.3% after the company missed on both top line and bottom line expectations. Specifically, American Express said it earned $1.24 per share on revenue of $8.19 billion, missing Wall Street’s targets of $1.40 per share on $8.3 billion in sales.
Options traders responded with puts, as the typically bearish bets accounted for 83% of yesterday’s total volume of 130,076 contracts on AXP. The shares could find technical support in the $72-$73 region in today’s trading. Additionally, there is potential put-option support in the region as well, with 911 contracts currently open at the weekly Oct 23 series $72.50 strike.
As of this writing, Joseph Hargett did not hold a position in any of the aforementioned securities.
