After a short stint (four days) in hibernation, the bears are back. Weak economic data out of China is roiling global markets, sending U.S. stock futures trading dramatically lower this morning.
The ongoing trade war took a dent out of China’s manufacturing in December. A survey revealed activity contracted from November’s 50.2% reading to 49.7%. This marks the first contraction in the data in 19 months.
Against this backdrop, futures on the Dow Jones Industrial Average are down 1.62% and S&P 500 futures are lower by 1.63%. Nasdaq-100 futures have shed 2.25%.
In the options pits on Monday, call volume won the day as overall volume levels dwindled considerably ahead of the holiday. Specifically, about 14.2 million calls and 12.6 million puts changed hands on the session.
Over at the CBOE, the single-session equity put/call volume ratio rocketed back from its lowest reading of the year to end the day at 0.60. Meanwhile, the 10-day moving average continued sliding to end the day at 0.77.
There were three standout stocks atop the options most-actives list on Monday. While Las Vegas Sands (NYSE:LVS) saw a jump in put trading, both Twitter (NASDAQ:TWTR) and Ford (NYSE:F) saw renewed interest in their call options.
Let’s take a closer look:
Las Vegas Sands (LVS)
Las Vegas Sands made a rare appearance on the options activity leaderboard on Monday. Puts dominated the session despite the day’s gains. Around the holidays, news-driven moves have been all but absent, and most of the stocks landing on the most-active list have been driven by randomness or the technicals.
LVS stock is no different. It spent the back half of the year in a downtrend, dismantling its great 2017 gains. Since peaking at $81.45 mid-year, LVS shares are down 36%.
Downside momentum did slow in the fourth quarter, but only time will tell if its a pause that refreshes lower or the beginning of a more definitive bottom.
On the options trading front, traders came after puts with a vengeance. Activity jumped to 317% of the average daily volume, with 67,930 total contracts traded. 84% of the trading came from put options alone.
Implied volatility wilted on the day, falling to 48%, or the 62nd percentile of its one-year range. Premiums are now pricing-in daily moves of $1.58 or 3%.
Twitter ended the year with a bear flag pattern making the volatile social media stock vulnerable heading into the new year. Though, I suppose every single equity is showing chinks in the armor, so this isn’t exactly a differentiator. Monday’s trading session ended with a narrow-bodied, light volume candle leaving little to talk about.
The interesting part of its story lies in the options market, which we’ll get to in a moment. Watch the $26 zone over the coming weeks. It proved pivotal support throughout 2018 but could break if we see a flush lower following the bear flag pattern.
On the options trading front, traders came after calls with a vengeance. Activity swelled to 136% of the average daily volume, with 144,474 total contracts traded. Calls accounted for 86% of the day’s total.
Implied volatility fell on the day to 69%, placing it at the 65th percentile of its one-year range. Premiums are now pricing in daily moves of $1.25 or 4.3%
The trade war, tariffs and economic slowdown worries continue to weigh on auto stocks. Weakness in Ford was on full display Monday as it closed out the year with a modest selloff. With the downturn, its 2018 year-to-date losses ended at 39%.
With F stock two pennies away from a new nine-year low and locked in a relentless downtrend, its outlook appears grim for the year ahead.
On the options trading front, calls outpaced puts on the day. Total activity increased to 127% of the average daily volume, with 101,542 total contracts traded. Calls added 61% to the day’s take.
The increased demand drove implied volatility higher on the day to 51%, placing it at the 80th percentile of its one-year range. Premiums are pricing in daily moves of 25 cents or 3.3%
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.