Friday’s Vital Data: Caterpillar, Netflix and Square

The campaign of gravity defiance continues this morning with U.S. stock futures solidly in the green. Part of the optimism is being driven by good news on the trade war front.

Friday's Vital Data: Caterpillar (CAT), Netflix (NFLX) and Square (SQ)Yesterday the Wall Street Journal reported that the Donald Trump administration could be cutting trade tariffs imposed on China.

Against this backdrop, futures on the Dow Jones Industrial Average are up 0.61% and S&P 500 futures are higher by 0.45%. Nasdaq-100 futures have added 0.51%.

In the options pits, call volume jumped yesterday as traders took to the derivatives market to express their enthusiasm. Specifically, about 20.9 million calls and 16.3 million puts changed hands on the session.

The ramp in call trading made waves at the CBOE as well. The single-session equity put/call volume ratio plunged to 0.52 — a new low for 2019. Meanwhile, the 10-day moving average sunk to 0.63.

Here are three key stocks that landed on the most-active options list. Caterpillar (NYSE:CAT) was flooded with activity ahead of today’s ex-dividend date. Square (NYSE:SQ) benefited from news that it was releasing a free debit card to complement its payment processing system. Finally, Netflix (NASDAQ:NFLX) saw increased trading ahead of last night’s hotly anticipated earnings report.

Let’s take a closer look:

Caterpillar (CAT)

Caterpillar shares broke above short-term resistance amid a groundswell in volume. Its technical posture has improved considerably since the industrial giant was beaten senseless on recession fears following its last earnings release. Now it stands above a rising 50-day and 20-day moving average.

The breakout no doubt helped spur options demand, but the real reason CAT landed atop the most-actives list was the looming dividend payout. Caterpillar is trading ex-dividend today, so Thursday’s dash for derivatives was aimed at controlling shares to capture the dividend. Shareholders of record at the close yesterday will be eligible to receive the upcoming dividend payout of 86 cents. CAT currently trades with a yield of 2.6%.

Traders came after calls with a vengeance. Total activity jumped to 512% of the average daily volume, with 157,361 total contracts traded. 81% of the trading came from call options.

Implied volatility slipped lower on the day to 37%, placing it at the 47th percentile of its one-year range. Premiums are pricing in daily moves $3.11, or 2.3%.

Square (SQ)

Momentum stocks are making a comeback, and it’s arguably one of the best signs that the broad market is returning to healthy status. Square scored a high volume breakout that lifted it back above the 200-day moving average to complete its budding trend reversal attempts.

The news drove yesterday’s bullish narrative. Square reported an expansion in its product offering with the creation of a free debit card allowing merchants to immediately spend money that was processed through Square without having to transfer it to a different bank account first.

On the options trading front, calls outpaced puts by a wide margin. Total activity jumped to 185% of the average daily volume, with 170,700 total contracts traded. Calls accounted for 68% of the day’s tally.

With the budding recovery, uncertainty is fading and implied volatility is falling accordingly. It now sits at 53% or the 34th percentile of its one-year range. Premiums are  pricing gin daily moves of $2.31

Netflix (NFLX)

Traders finally got their first look at whether or not this year’s insane rebound in Netflix was justified. The media giant stepped up to the earnings plate last night and reported satisfying results to the Street. Rather than unwinding its recent rally or tacking on more, Netflix shares are almost unchanged in after-hours trading. As I type, NFLX sits down a mere 1.80%.

Here’s a rundown of the numbers. On Q4 revenue Netflix missed analyst estimates reporting $4.19 billion versus the Street’s expectation of $4.21 billion. Earnings per share came in at 30 cents versus estimates of 24 cents. Finally, total paid subscriber growth for the quarter was 8.8 million versus analyst expectations of 7.6 million.

On the options trading front, call and put activity was balanced on the day. Total trading ramped to 164% of the average daily volume, with 310,978 total contracts traded. Calls added 52% to the day’s take.

Ahead of the earnings release, options were pricing in a move of $27.23, or 7.7%. So, with the stock only down $7 premarket, the earnings reaction was a snoozer. Premium sellers are waking up to a big win this morning.

As of this writing, Tyler Craig didn’t hold a position in any of the aforementioned securities. Check out his recently released Bear Market Survival Guide to learn how to defend your portfolio against market volatility.

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