U.S. stock futures are inching higher this morning. All eyes are on the Fed, which kicks off its two-day meeting today. While it’s not expected to make changes to the Fed Funds rate, investors will be on the lookout for changes in the Fed’s plans to reduce their balance sheet.
In early morning trading, futures on the Dow Jones Industrial Average are up 0.30% and S&P 500 futures are higher by 0.17%. Nasdaq-100 futures have added 0.24%.
In the options pits, put volume outpaced calls even as overall volume levels remained subdued. Specifically, about 14.7 million calls and 15.6 million puts changed hands on the session.
The surge in put trading made an impact at the CBOE, where the single-session equity put/call volume ratio rose to 0.76 — a two-week high. Meanwhile, the 10-day moving average held its ground at 0.63.
Options activity was a mixed bag on Monday. Caterpillar (NYSE:CAT) saw renewed options interest after cratering on weaker-than-expected earnings. Cronos (NASDAQ:CRON) surged after a positive mention from Jim Cramer. Finally, Nvidia (NASDAQ:NVDA) shares were slashed after the struggling chip company cut its revenue guidance.
Let’s take a closer look:
Caterpillar (CAT)
Caterpillar added legitimacy to global economic slowdown fears with yesterday morning’s earnings report. The results were worth worrying about and sent the industrial giant’s shares down 9.1% on the session. The downdraft echoed last quarter’s beatdown, which saw CAT stock drop a similar amount.
For the fourth quarter, the struggling feline earned $2.55 earnings-per-share on revenue of $14.3 billion. Both measures missed the Street’s estimates of $2.98 and $14.37 billion, respectively.
The plunge sent CAT shares back below the 20-day and 50-day moving average. Bad things happen on the south side of these smoothing mechanisms. With bears now dominating, I see little technical reason for optimism moving forward.
On the options trading front, calls dominated the session. Total activity swelled to 512% of the average daily volume, with 169,476 total contracts traded. Calls accounted for 55% of the day’s take.
With earnings out of the way, implied volatility fell to 36% and now sits at the 45th percentile of its one-year range. Premiums are pricing in daily moves of $2.83 or 2.3%.
Cronos Group (CRON)
Cronos Group was already high on hopes surrounding the potential of the growing marijuana market. But yesterday the sentiment shifted from optimistic to euphoric, sending CRON stock into the stratosphere. The catalyst appears to be the company scoring a mention from Jim Cramer, the host of “Mad Money.” After Friday’s trading session he said Cronos Group was the second best company in the industry after Canopy Growth (NYSE:CGC).
The endorsement was all the approval traders needed to pile into the Canadian cannabis producer. CRON shares have now gained 78% year-to-date.
On the options trading front, traders came after calls with a vengeance. Total activity jumped to 382% of the average daily volume, with 103,451 total contracts traded. 59% of the trading came from call options alone.
The demand surge drove implied volatility higher on the session to 107% — a six-week high.
Nvidia (NVDA)
Nvidia shareholders received a nasty surprise yesterday when the company pre-announced a reduction in its revenue expectations. Rather than waiting for its next quarterly report on Feb. 14, NVDA slashed its revenue guidance from $2.70 billion to $2.20 billion.
The once high-flying chip maker blamed “deteriorating macroeconomic conditions, particularly in China,” for its revenue woes. Chart watchers will find the timing of Monday’s 13.8% loss particularly annoying because it upended what was beginning to look like a clear bottoming pattern in the stock. NVDA had risen above the 50-day moving average for the first time since last October.
On the options trading front, calls and put volumes were balanced on the day. Total activity did increase to 270% of the average daily volume, with 499,285 total contracts traded. Puts accounted for 51% of the session’s tally.
Implied volatility slipped slightly to 54%, placing it at the 52nd percentile of its one-year range. Premiums are pricing in daily moves of $4.74 or 3.4%.
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.
