Wednesday’s Vital Data: Walmart, Freeport McMoran and CVS

Options activity provides a look at expectations on WMT, FCX and CVS

U.S. stock futures are circling unchanged this morning. The quiet open comes after stocks extended their rally Tuesday. Small-caps led the charge, notching their seventh up day in a row.

Options Trading and Wednesday's Vital Data: Walmart (WMT), Freeport McMoran (FCX) and CVS (CVX)But it was gold that stole the limelight. Weakness in the dollar fueled a breakout that sent the yellow metal to a new 10-month high. Gold prices have now risen 15.5% since bottoming last August at $1,167.10.

Against this backdrop, futures on the Dow Jones Industrial Average are down 0.07% and S&P 500 futures are lower by 0.02%. Nasdaq-100 futures have added 0.13%.

Compared to Friday’s enthusiastic bid for call options, demand for derivatives fell dramatically yesterday. Only about 16.6 million calls traded, compared to 13.7 million puts. The continued market strength has all but erased investors’ desire for put protection.

Given the ultra-low reading in the CBOE single-session equity put/call volume ratio on Friday, it’s no surprise the reading popped back. This is common once cooler heads prevail following a mad dash for calls. The measure lifted to 0.61 while the 10-day moving average held its ground at 0.60.

Here are three hot stocks landing atop the most-actives list. Walmart (NYSE:WMT) soared after reporting robust e-commerce sales during the fourth quarter. Freeport-McMoran (NYSE:FCX) scored a mouth-watering breakout on the heels of strength in gold and copper prices. Finally, CVS (NYSE:CVS) options were hot ahead of this morning’s report.

Let’s take a closer look:

Walmart (WMT)

Walmart laid fears of a poor holiday performance to rest yesterday by reporting impressive fourth-quarter earnings results. The retail ringleader earned $1.41 per share on revenue of $138.8 billion. It also announced a boost in its quarterly dividend from 52 cents to 53 cents. Investors were particularly excited with its growth in e-commerce sales, which showed the company is faring very well in an Amazon-dominated world. For the full year, WMT’s e-commerce sales grew by 40%.

Though its early-morning gains were trimmed by the closing bell, WMT stock still closed 2.21% higher amid strong volume. With the stock perched well above rising moving averages across all time frames, the path of least resistance is higher. That means price dips are buying opportunities.

On the options trading front, calls ruled the roost. Total activity increased to 380% of the average daily volume, with 148,710 total contracts traded. 67% of the trading came from call options.

With the uncertainty of earnings now in the rearview mirror, implied volatility sunk like a stone to 19%. That places it at the 23rd percentile of its one-year range. Premiums are now pricing in daily moves of only $1.21, or 1.8%.

Freeport-McMoran (FCX)

Mining stocks are on the mend. Buoyed by renewed strength in copper and gold, not to mention investors’ newfound infatuation with small-caps, Freeport-McMoran scored a 6.6% gain on Tuesday. And it’s up another 2% in premarket trading.

A survey of the news revealed few developments of note, so traders should view yesterday’s surge as a technical-driven move. On top of the jump in commodity prices fueling the rally, FCX also broke above a critical resistance level. Chart watchers know breakouts tend to bring all the buyers to the yard.

Before this week, the $12.70 zone had kept a lid on previous rally attempts. But no longer! FCX has a date with $15, so consider that the next upside target.

As far as options trading goes, the resistance breach had speculators bidding up calls all day long. Activity jumped to 276% of the average daily volume, with 167,437 total contracts traded. Calls accounted for 77% of the day’s take.

Implied volatility held firm at 44%, keeping it at the 29th percentile of its one-year range. With premiums pricing in 37-cent moves, traders continue to anticipate daily fluctuations of 2.8%.

CVS Health (CVS)

CVS stock is tumbling 8.8% after reporting mixed results for the fourth quarter. The company raked in earnings of $2.14 on revenue of $54.42 billion. According to Refinitiv’s survey of analysts, the Street was anticipating earnings of $2.05 on $54.58 billion in revenue.

The rally that carried CVS into today’s earnings is being rapidly unwound premarket. At $63.79, the stock is poised to open near its low for 2019. Major support looms at $62.50 so if that gives way, watch out below.

On the options trading front, calls dominated the session. Needless to say, traders who were buying in hopes of an up-gap will be sorely disappointed this morning. Total activity ramped to 397% of the average daily volume, with 99,374 total contracts traded. Calls contributed 70% to the session’s sum.

The expected move heading into earnings was $2.43, so this morning’s -$5.86 thrashing falls well outside of expectations. Chalk this up as a win for volatility buyers. Implied volatility should fall on the day, but it’s descent could be muted in light of the blowout gap.

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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