Friday’s Vital Data: Square, Southwest Airlines and Celgene

U.S. stock futures are surging this morning in a bid to finally end the multi-day pause that settled on the market this week. The lack of downside followthrough even as the market has battled with major overhead resistance at 2,800 reflects the continued impotence of sellers to halt the market’s fiery flight.

Friday's Vital Data: Square (SQ), Southwest Airlines (LUV) and Celgene (CELG)Heading into the open, futures on the Dow Jones Industrial Average are up 0.63% and S&P 500 futures are higher by 0.58%. Nasdaq-100 futures have added 0.63%.

Yesterday’s quiet session did little to ignite options activity. Put volume did increase slightly on the day, but not anywhere close to panic levels. Specifically, about 17.3 million calls and 15.8 million puts changed hands on the session.

The CBOE single-session equity put/call volume ratio continued its ping-pong action in the middle of its range. The low-volatility lull settling on equity prices has made analyzing this particular ratio a total bore of late. With the uptick in put trading, the reading jumped to 0.63 while the 10-day moving average ticked higher to 0.59.

Here were three stocks in the sights of options traders. Square (NYSE:SQ) roared back after initially stumbling on earnings. Southwest Airlines (NYSE:LUV) surged amid unconfirmed rumors that Berkshire Hathaway (NYSE:BRK-A) is considering buying the company. Finally, Celgene (NASDAQ:CELG) plunged as doubt surrounding whether the company’s deal with Bristol-Myers Squibb (NYSE:BMY) will go through.

Let’s take a closer look:

Southwest Airlines (LUV)

Southwest Airlines took to the sky yesterday in response to a double dose of good news. First, the company finally received approval from the Federal Aviation Administration to offer flights to Hawaii. Second, and most likely the piece that drove the stock’s high volume surge, was a rumor that Warren Buffet’s flagship, Berkshire Hathaway, was considering buying the company.

LUV stock rallied 4.07% by day’s end on 15.3 million shares in volume. The jump carried Southwest back above its 200-day moving average helping to reaffirm its budding uptrend.

On the options trading front, traders came after calls with a vengeance. Total activity ballooned to 1,086% of the average daily volume, with 107,690 total contracts traded. Calls dominated the total, accounting for 60%.

With options suddenly in vogue, implied volatility jumped to 32%, placing it at the 42nd percentile of its one-year range. Premiums are now pricing in daily moves of $1.12, or 2%.

Celgene (CELG)

Traders slammed Celgene shares to the tune of 8.7% after the Wall Street Journal reported dissension among the ranks at Bristol-Myers Squibb. One of the top shareholders of BMY said it disagrees with the biopharmaceutical company’s bid to buy Celgene. Activist investors Starboard Value LP mentioned “risks inherent in this acquisition” among other things as causes for concern.

Other big-fish shareholders have previously expressed doubt over the wisdom of the acquisition. The renewed skepticism led sellers to smash the sell button, fretting that the instant gains from January when the deal was first announced are now at risk.

Traders took to the options market to express their pessimism, causing puts to outpace calls on the session. Activity grew to 778% of the average daily volume, with 225,137 total contracts traded. Puts accounted for 55% of the sum.

The increased uncertainty lit a fire under implied volatility, sending it to 45%, or the 49th percentile of its one-year range. Premiums are now pricing in daily moves of $2.38, or 2.9%.

Square (SQ)

As reported yesterday, Square’s earnings release was initially viewed with displeasure due to the lukewarm forward guidance. But, the doubt sure didn’t last long. Buyers immediately swarm to buy the down open and fill the gap. And then some! By day’s end, SQ moved into positive territory rising 2.4%.

The high volume pop confirmed the breakout which began ahead of the release. SQ remains on sound technical footing, trending higher with rising 20-day, 50-day, and 200-day moving averages. Only one ceiling remains ($83) between its current price and all-time highs.

Given the sharp upside reversal, it should come as no surprise that calls won the popularity contest. Activity topped 384% of the average daily volume, with 342,253 total contracts traded. Calls added 63% to the total.

The post-earnings volatility crush was on full display, driving implied volatility into the cellar. At 44%, it now sits at the 18th percentile of its one-year range. The daily expected move is $2.25, or 2.8%.

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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