U.S. stock futures are trading higher as traders attempt to right the ship after yesterday’s large sell-off. The bout of profit-taking was well-deserved given the market’s rocket-like rebound and overbought status.
Heading into the open, futures on the Dow Jones Industrial Average are up 0.74% and S&P 500 futures are higher by 0.49%. Nasdaq-100 futures have added 0.54%.
In the options pits, put volume won the session yesterday, even as overall volume levels fell back from Friday’s surge. Specifically, about 17.6 million calls and 18.6 million puts changed hands on the session.
At the CBOE, the single-session equity put/call volume ratio rose to 0.64. Meanwhile, the 10-day moving average held its ground at 0.63.
Options traders zeroed in on earnings reports yesterday. IBM (NYSE:IBM) saw renewed options interest ahead of last night’s release. Ford (NYSE:F) and American Airlines (NYSE:AAL) were both flooded with activity ahead of their upcoming announcements.
Let’s take a closer look:
IBM (IBM)
IBM stepped up to the earnings plate last night and delivered solid results. So much so that investors are rewarding shares of the beaten-down tech titan with a 7.5% gain in pre-market trading. The after-hours buying binge is the primary reason the Dow is entering today’s trading session with a larger up gap than any other U.S. Index.
IBM earned $4.87 per share on revenue of $21.76 billion. Both measures topped estimates. The company’s full-year guidance for 2019 also came in better-than-expected.
On the options trading front, put and call volume were balanced ahead of last night’s report. Total activity swelled to 454% of the average daily volume, with 114,852 total contracts traded. 51% of the trading came from put options.
Premiums were pricing in a gap of $7.23, or 5.9%, so this morning’s 7.5% pop is outside of the expected range. That suggests volatility buyers who deployed strategies like long straddles should see a profitable position come the opening bell.
Ford (F)
Ford shares slid on Tuesday, suffering alongside the broad market selloff. The action in the options market shows traders jockeying for positions ahead of Wednesday night’s earnings release.
The ongoing trade war and global economic slowdown fears hampered Ford’s stock performance last year. With the decline, the ailing automaker now rests near a nine-year low and remains in desperate need of a positive catalyst. All technical indications continue to favor sellers.
On the options trading front, put volume was on the move. Total activity climbed to 186% of the average daily volume, with 169,878 total contracts traded. Puts accounted for 60% of the day’s take.
Heading into earnings tonight, premiums are pricing in a 34, cent or 4%, move. Implied volatility sits at 42%, placing it at the 56th percentile of its one-year range.
American Airlines (AAL)
American Airlines reports earnings before the bell on Thursday. And that makes today the last trading session for traders to pick their spots ahead of the number. 2018 was a very challenging year for AAL stock. The peak-to-trough decline grew to 50% as the airliner fell deep into bear market territory.
With the 200-day and 50-day moving averages both cruising lower, it’s going to take some time for AAL stock to carve out a sustainable reversal.
On the options trading front, puts and calls remained equally popular. Total activity ramped to 277% of the average daily volume, with 114,929 total contracts traded. Calls added 52% to the day’s tally.
The increased demand drove implied volatility higher on the day to 51%, placing it at the 57th percentile of its one-year range. According to these slightly pumped premiums, the market is expecting an earnings move of $1.96, or 6%.
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.
