Thursday’s Vital Data: Aurora Cannabis, Roku and Merck

Options activity provides a look at expectations on ACB, ROKU and MRK

U.S. stock futures are flirting with unchanged this morning as the market seeks to extend its gains for the fourth day in a row.

Thursday's Vital Data: Aurora Cannabis, Roku and MerckThe S&P 500 is once again probing critical resistance at $2,820. This marks the sixth such test since October and a successful break will signal a major victory for bulls.

Against this backdrop, futures on the Dow Jones Industrial Average are down 0.02% and S&P 500 futures are higher by 0.02%. Nasdaq-100 futures have added 0.09%.

In the options pits, call volume jumped yesterday, helping to drive overall volume to above-average levels. Specifically, about 20.3 million calls and 15.6 million puts changed hands on the session.

Meanwhile, at the CBOE the single-session equity put/call volume ratio skidded to a lowly 0.52 which is just shy of a new low for 2019. The 10-day moving average held steady at 0.65.

Let’s zero in on three hot stocks landing atop the options most-actives list. Aurora Cannabis (NASDAQ:ACB) soared after the company announced a strategic partnership with activist investor Nelson Peltz. Roku (NASDAQ:ROKU) suffered a 14% thrashing after being downgraded by Loop Capital and Macquarie. Finally, Merck (NYSE:MRK) options were hot ahead of its quarterly dividend date.

Let’s take a closer look:

Aurora Cannabis (ACB)

Aurora Cannabis scored the highest-volume session of its life yesterday after reporting Nelson Peltz was joining the company as a strategic advisor. In the press release, ACB stated Peltz will “work collaboratively and strategically to explore potential partnerships that would be the optimal strategic fit for successful entry into each of Aurora’s contemplated market segments.”

Investors expressed their excitement over the news by bidding ACB stock to a new four-and-a-half month high at $9.07. The 13.9% daily gain saw over 133 million shares change hands on the session. The surge officially completes the bullish cup-and-handle pattern that had formed in the stock and tees it up for a run back toward its record high of $12.53.

The enthusiasm was on full display in the options pits where calls dominated the day. Activity rocketed to 459% of the average daily volume, with 214,940 total contracts traded. 85% of the trading came from call options alone.

Roku (ROKU)

A double dose of downgrades took ROKU shares out at the knees yesterday, upending what was otherwise one of the best trends on the Street. The stock entered the day up 131% on the year and a stone’s throw from new all-time highs.

Saddened shareholders seeking someone to blame can cast their eyes to Loop Capital and Macquarie. Analysts at both firms downgraded the red-hot stock, citing stretched valuations.

The cold water tossing was bound to happen at some point. Even with starry-eyed growth projections, it’s hard to justify such a blistering pace in ROKU stock’s ascension. Its price chart was begging for a pullback, and the downgrades were all the excuse needed for profit-fattened traders to ring the register.

Given the bevy of support zones looming beneath, I suspect this dip will prove buyable.

On the options trading front, puts slightly outpaced calls. Activity grew to 329% of the average daily volume, with 208,637 total contracts traded. Puts added 51% to the day’s tally.

Implied volatility zoomed higher on the day to 62%, placing it at the 33rd percentile of its one-year range. Premiums are now pricing in daily moves of $2.38, or 3.9%

Merck (MRK)

The past year has brought numerous new highs to Merck shares, proving once again the value of betting on trend continuation. At $81.60, the pharmaceutical giant ended Wednesday a pebble toss away from record territory.

While MRK stock ended with a doji candle amid an otherwise lackluster trading session, its options were on fire ahead of today’s ex-dividend date. Traders holding the stock by yesterday’s close will have rights to the looming 55 cent dividend payout. All-in, Merck boasts an annual dividend yield of 2.71%.

Saavy traders used call options to snatch up shares of stock and have rights to the dividend. Total activity ballooned to 576% of the average daily volume, with 147,033 total contracts traded. A whopping 96% of the trading originated with calls.

Implied volatility remains subdued at 15%, or the second percentile of its one-year range. Premiums are pricing in daily moves of 76 cents, or 0.9%.

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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