U.S. stock futures are trading lower as markets digest yesterday’s outsized gains. With market indexes up six days in a row and running headlong into overhead resistance, some profit-taking is entirely justified. Any consolidation near the upper end of the recent trading range would be a positive development.
In early morning trading, futures on the Dow Jones Industrial Average are down 0.29% and S&P 500 futures are lower by 0.18%. Nasdaq-100 futures have lost 0.27%.
In the options pits, call volume spiked sharply yesterday to accompany the large market rally. Specifically, about 25.8 million calls and 18.4 million puts changed hands on the session.
At the CBOE the single-session equity put/call volume ratio inched higher to 0.57. The 10-day moving average continued its slide to 0.67.
Options activity was particularly high in a pot stock and in the technology sector yesterday. Intel (NASDAQ:INTC) saw renewed options interest after scoring a breakout to fresh four-month highs. Advanced Micro Devices (NASDAQ:AMD) benefited from the trade war cease-fire. Finally, Cronos Group (NASDAQ:CRON) was flooded with activity amid news that Altria (NYSE:MO) is reportedly in talks to acquire the cannabis producer.
Let’s take a closer look:
The price action over the past six weeks has been extremely constructive for INTC stock. After popping on earnings, it formed a high and tight base just beneath its 200-day moving average and key horizontal resistance at $49. Yesterday’s high-volume breakout spelled the end of the consolidation phase and potential beginning of a new ascent.
The news was light yesterday for Intel, so I’m chalking up the mad dash for options as a byproduct of the price breakout.
On the options trading front, calls won the popularity contest. Activity ramped to 260% of the average daily volume, with 197,205 total contracts traded. Calls contributed 69% of the total.
As fear dissipates so too does implied volatility. It fell on the day to 26%, placing it at the 32nd percentile of its one-year range. Traders are now pricing in daily moves of 83 cents, or 1.7%.
Advanced Micro Devices (AMD)
The trade war cease-fire between the U.S. and China that was reached at G-20 summit was the talk of the town yesterday and, indeed, the biggest driver of Monday’s market gains. Many of the largest winners were companies with heavy exposure to China that should see the biggest boost to their bottom line if U.S.-China relations continue to improve.
AMD is one of them and was mentioned in a CNBC article that cited a Goldman Sachs report from earlier in the year describing how over a quarter of the chip company’s annual revenue came from China. Bulls embarked on a buying binge, sending AMD shares up a mouthwatering 11.3%.
On the options trading front, calls slightly outpaced puts on the session. Activity increased to 160% of the average daily volume, with 423,640 total contracts traded. Calls accounted for 56% of the day’s take.
Implied volatility fell on the day to 65%, placing it at the 43rd percentile of its one-year range. That said, premiums are still pumped and continue to price in 4% daily moves.
Cronos Group (CRON)
Cronos shares soared as much as 30% before settling back to an 11% gain on Monday. The rocket-like rise came after reports that cigarette maker Altria was in early talks to buy the cannabis producer.
According to CNBC, Cronos said in a statement that it “confirmed that it is engaged in discussions concerning a potential investment by Altria Group … in Cronos Group.”
On the options trading front, traders came after calls with a vengeance. Activity swelled to 515% of the average daily volume, with 99,419 total contracts traded. 71% of the trading came from call options alone.
Implied volatility skyrocketed higher on the day to 128%, placing it at the 60th percentile of its one-year range. Front-month straddles are pricing in a 26% move between now and Dec expiration.
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.