U.S. stock futures are trading lower this morning following yesterday’s second consecutive record close in the Dow Jones. Investors are buzzing about Wednesday’s surge in interest rates. The 10-year yield soared to 3.16%, a new seven-year high as investors continued to price in higher inflation expectations.
On the heels of the rally, interest-rate sensitive sectors saw significant money flows. Bank stocks boomed while classic dividend paying sectors like consumer staples and utilities stumbled. Against this backdrop, futures on the Dow Jones Industrial Average are down 0.32% and S&P 500 futures are lower by 0.32%. Nasdaq-100 futures have shed 0.50%. Unless buyers emerge quickly, we’re heading for one of the weakest opens we’ve seen in a few weeks.
In the options trading pits, trading activity was on the rise yesterday. Specifically, about 20.6 million calls and 16.3 million puts changed hands on the session.
Over at the CBOE, the single-session equity put/call volume ratio ticked higher slightly to 0.56. The 10-day moving average continues to hold steady at 0.58.
On the equity options front, there were three movers and shakers. General Motors (NYSE:GM) was active following news of a joint venture with Honda Motors (NYSE:HMC) to build autonomous vehicles. Boeing (NYSE:BA) extended its gains following a recent breakout, and Bank of America (NYSE:BAC) benefited from the boost in interest rates.
Let’s take a closer look:
General Motors (GM)
GM stock initially gapped higher by some 5% after announcing that Honda is investing $2.75 billion to “develop a shared autonomous vehicle.” While announcing the deal in a short video, GM states “General Motors and Cruise are joining forces with Honda to develop a shared autonomous vehicle. Together.”
Before yesterday’s pop, GM shares had slid to a 52-week low. Since peaking near $45 in mid-June, the automaker has seen its stock price fall some 26%. Positive catalysts like yesterday are much needed right now. Unfortunately, the majority of the gains dissipated throughout the day. Though GM started up 5%, it ended closing with a 2.1% rise.
With the stock stuck beneath a falling 20-day, 50-day and 200-day moving averages, I suggest continuing to view rallies as suspect.
On the options trading front, the news was enough to send traders after call options. Activity swelled to 206% of the average daily volume, with 95,735 total contracts traded. 74% of the trading was focused on the call side.
Implied volatility continued the rise that began two weeks ago and is now sitting at the 53rd percentile of its one-year range. Premiums are officially pumped bringing elevated profits to options sellers.
Bank of America (BAC)
Bank stocks were hopping in response to the big-league breakout in interest rates. The renewed interest is a welcome development as BAC stock had recently fallen to a ten-week low with support broken along the way. The jump in the 10-year yield delivered a high-volume rebound that lifted BAC higher by 1.4%.
The catalyst for yesterday’s rate rise and accompanying boom in bank stocks was a monthly ADP private payrolls report that showed its biggest increase in seven months suggesting continued improved in the labor market which should continue to support wage growth and thus inflation.
Despite yesterday’s buzzing in banks, the price action remains muddled for BAC. With crisscrossing moving averages and a general trading range in place, it’s hard to be overly excited for directional trades right now. Traders may need to wait until its upcoming earnings release on October 15th for a definitive trend to emerge.
On the options trading front, call options were in vogue. Activity rose slightly higher to 132% of the average daily volume, with 385,350 total contracts traded. A whopping 84% of that was from the call side.
Implied volatility held steady at the 31st percentile of its one-year range.
Boeing (BA)
Aerospace kingpin, Boeing is making another appearance on our list. The perfect storm of good news (BA won a $9.2 billion contract from the U.S. Air Force), rotation into large-caps, and a long-awaited price chart breakout have made Boeing one of the hottest stocks on the Street this week.
Yesterday’s close of $392.30 marks a new record high, and with $400 so close, it’s likely to act as a magnet. Despite the strength, BA stock is becoming quite overbought here, so don’t be surprised if the upside momentum slows over the coming trading sessions.
On the options trading front, traders once again were clamoring for calls. Activity remains elevated at 173% of the average daily volume, with 92,617 total contracts traded. Calls continued to dominate accounting for 66% of the tally.
Implied volatility lifted slightly to the 33rd percentile of its one-year range – a two-and-a-half month high.
As of this writing, Tyler Craig held neutral options positions in BA. Want insightful education on how to trade? Check out his trading blog, Tales of a Technician.
