U.S. stock futures are trading broadly higher after one of the largest routs seen in years. Panic was in the air yesterday as the Street’s favorite fear gauge finally squeezed to blood in the Street levels. At 28.84, Thursday’s peak in the CBOE Volatility Index (VIX) reflected the type of capitulation that has accompanied many short-term market bottoms in the past.
Against this backdrop, futures on the Dow Jones Industrial Average are up 0.88% and S&P 500 futures are higher by 0.98%. Nasdaq-100 futures have added 1.51%. Bulls are hoping this morning’s up-gap won’t be as thoroughly thrashed as yesterday’s.
In the options pits, put volume spiked sharply Thursday confirming that panic was indeed pervasive. Specifically, about 28.8 million calls and 34.5 million puts changed hands on the session.
Interestingly, put trading didn’t outpace calls at the CBOE, where the single-session equity put/call volume ratio fell back to 0.68. The 10-day moving average continued its climb and tagged yet another five-month high at 0.66.
Options activity was on the rise in bank stocks. Bank of America (NYSE:BAC) and JPMorgan Chase (NYSE:JPM) options surged ahead of its upcoming earnings release. Elsewhere, Square (NYSE:SQ) continued its slide with the news that its CFO is departing.
Let’s take a closer look:
Bank of America (BAC)
With today’s earnings release in JPMorgan Chase & Co. kicking off a slew of bank earnings, traders took to the options market to place their bets in the heavy hitters of the banking sector, including Bank of America.
On the options trading front, call options reigned supreme. Activity swelled to 291% of the average daily volume, with 911,527 total contracts traded. 78% of the trading came from call options alone.
As with all stocks during yesterday’s bloodbath, implied volatility higher for BAC ramped on the day to close at 32%. It’s now perched at the 68th percentile of the one-year range — its highest level since March.
With Thursday’s swoon, BAC tagged a fresh three-month low and now sits a stone’s throw from its 2018 lows. Like most stocks following this week’s crash, the technicals are now terrible. Until overhead supply is cleared out, be wary of rallies.
Square (SQ)
The negative catalysts for Square just keep coming. Earlier this week Mark Palmer of BTIG unleashed a negative report raising concerns on the company’s credit risk exposures. Now, the Street has to deal with the news that Chief Financial Officer Sara Friar is leaving the mobile payments company in December.
At yesterday’s lows, SQ had fallen a jaw-dropping 36%. And we’re talking just since Oct. 1.
As you might expect, traders took to the options market to grapple with the volatile moves. Activity grew to 244% of the average daily volume, with 261,841 total contracts traded. Despite the bloodbath, calls still ruled the day with 57% of the total.
Implied volatility rocketed higher this week to 82%. It is fast approaching the highest readings of the past year. With the back of its uptrend now broken, expect elevated volatility and two-sided action in Square for weeks to come.
JPMorgan Chase (JPM)
Traders took to the options market in anticipation of this morning’s earnings release. Call volume outpaced put volume accounting for 59% of the day’s take. Activity swelled to 237% of the average daily volume, with 176,937 total contracts traded.
Implied volatility spiked sharply closing the day at 32%. Heading into earnings, it sat at the 83rd percentile of its one-year range. JPM stock has made little headway this year. Indeed, the story of 2018’s price behavior is one of being home on the range. With yesterday’s plunge, the stock it saw its year-to-date gains pared to 1%.
Shareholders will be happy to note that earnings came in strong this morning. The New-York based bank reported a 24% increase in profits versus a year ago. Its earnings were bolstered by the rise in interest rates as well as a low tax bill. JPM is up 2.15% in pre-market trading.
As of this writing, Tyler Craig didn’t hold positions in any of the aforementioned securities. Want insightful education on how to trade? Check out his trading blog, Tales of a Technician.
