Monday’s Vital Data: Bank of America, Citigroup and Apple

Options activity provides a look at expectations on BAC, C and AAPL

U.S. stock futures are edging lower this morning as equities try to find their footing following Friday’s bloodbath. Last week’s plunge in long-term bond yields stoked economic slowdown fears. Small-caps, banks and transportation stocks led the decline.

Monday's Vital Data: Bank of America (BAC), Citigroup (C) and Apple (AAPL)Against this backdrop, futures on the Dow Jones Industrial Average are down 0.13% and S&P 500 futures are lower by 0.13%. Nasdaq-100 futures have shed 0.23%.

In the options pits, puts scored a rare victory on the popularity front by outpacing calls on the session. The win came even as overall volume levels surged to well above average levels. Specifically, about 23.18 million calls and 23.21 million puts changed hands on the session.

Naturally, the fear fest sparked a jump in put option trading at the CBOE as well. The single-session equity put/call volume ratio surged to 0.68 — a three-week high. Meanwhile, the 10-day moving average held its ground near its 2019 low at 0.58.

Options traders zeroed in on bank and technology stocks on Friday. Bank of America (NYSE:BAC) plunged after breaking a critical support zone. Citigroup (NYSE: C) dropped 4.6% but was saved from a support breach by the closing bell. Finally, Apple (NASDAQ:AAPL) fell amid widespread profit-taking in the technology sector.

Let’s take a closer look:

Bank of America (BAC)

Bank of America was one of the hardest hit companies during Friday’s beatdown in the banking industry. The inverted yield curve that has the punditry class all aflutter is to blame for two reasons. First, it hampers banks’ profitability by shrinking net interest margins. And second, it warns of a recession on the horizon.

BAC stock dropped 4.2% and cracked below pivotal short-term support at $28. With its price now submerged beneath all major moving averages, the path of least resistance is officially lower. That means rallies are destined to die and gravity reigns supreme.

On the options trading front, calls won the day despite the schoolyard beatdown. Activity swelled to 276% of the average daily volume, with 597,084 total contracts traded. 67% of the tally came from calls.

With stock volatility on the rise, option prices expanded, driving implied volatility to 30%. That places it at the 41st percentile of its one-year range. Premiums are now pricing in daily moves of 50 cents, or 1.9%.

Citigroup (C)

The dismal performance in Citigroup matched Bank of America in dreadfulness with one key difference. While BAC breached significant support, C stock stopped just shy of the cliff. But shareholders shouldn’t breathe a sigh of relief just yet. One more well-placed banana peel and Citigroup is likely to join its peer.

At best, C stock is likely to remain stuck in its two-month trading range. Buyers should steer clear until it can clear the 200-day moving average near $66. Alternatively, short sellers seeking a trade might consider entering on a break below Friday’s low.

Drilling down to the options trading details reveals the following. Calls proved more popular than puts despite the day’s thrashing. Activity ballooned to 338% of the average daily volume, with 190,571 total contracts traded. 67% of the total fell on the call side of the ledger.

Implied volatility ramped to 31%, placing it at the 36th percentile of its one-year range. Premiums are baking in daily moves of $1.19, or 2%.

Apple (AAPL)

Apple entered Friday having rallied for nine of the last 10 trading sessions. So let’s all agree that the bout of profit-taking was well-deserved and needed to re-establish lower risk entries for spectators. Though the volume came in above average, it was still lower than the participation that accompanied Thursday’s strong breakout candle.

With AAPL stock still well above its rising 20-day and 50-day moving averages, I see little reason to view this as anything other than a garden-variety pullback that will ultimately prove a buying opportunity.

The action in AAPL options mirrored that of today’s other two mentions. Calls reigned supreme, and activity jumped to 251% of the average daily volume, with 1,149,744 total contracts traded. Calls accounted for 66% of the total.

Implied volatility also bumped up to 27%, placing it at the 36th percentile of its one-year range. Premiums are now pricing in daily moves of $3.24, or 1.7%.

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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