Thursday’s Vital Data: Canopy Growth Corp, Bank of America and Twitter

Options activity provides a look at expectations on CGC, TWTR and NFLX

U.S. stock futures are trading lower as investors continue digesting yesterday’s Federal Reserve announcement. As expected, the central bank held the benchmark funds rate steady at 2.25% to 2.5%, while suggesting additional rate hikes are officially off the table for 2019.

Thursday's Vital Data: Canopy Growth Corp (CGC), Bank of America (BAC), Twitter (TWTR)Additionally, the Fed lowered its GDP growth and inflation forecasts.

Against this backdrop, futures on the Dow Jones Industrial Average and S&P 500 are both down 0.34%. Nasdaq-100 futures have shed 0.39%.

In the options pits, the margin between call and put volume narrowed as uncertainty surrounding the Fed drummed up demand for protection. Specifically, about 18 million calls and 17 million puts changed hands on the session.

However, the put push didn’t translate over to the CBOE, where the single-session equity put/call volume ratio held steady at 0.58. Meanwhile, the 10-day moving average fell to 0.62.

Options activity was a mixed bag on Wednesday. Canopy Growth (NYSE:CGC) saw a surge in call trading while trying to break free of its six-week triangle pattern. Bank of America (NYSE:BAC) suffered amid the post-Fed carnage in interest rates. Finally, Netflix (NASDAQ:NFLX) scored a high-volume breakout.

Let’s take a closer look:

Canopy Growth (CGC)

Canopy Growth shares have been uncharacteristically sleepy of late. But the nap is about to end. So says Wednesday’s high-volume breakout attempt, which ultimately failed in the aftermath of the Fed meeting. All eyes will be on the pot stock today to see if the second time is a charm.

The symmetrical triangle pattern forming in CGC over the past six weeks is ripped from a textbook. With the apex of the coiled spring pattern fast approaching, a big-league breakout is imminent. And if volume patterns have their way, the resolution should happen higher.

With implied volatility at the lower-end of its one-year range, long premium plays like buying calls or bull call spreads are an attractive way to game a potential rally.

Indeed, the mad dash for calls has already begun. Yesterday’s activity roared to 235% of the average daily volume, with 107,380 total contracts traded. Put demand fell by the wayside as calls accounted for 84% of the day’s total.

Bank of America (BAC)

Bank stocks took it on the chin following the Fed announcement. With Jerome Powell indicating zero additional rate hikes planned for 2019 and downgrading the Fed’s growth expectations, bond prices ripped while bank stocks dipped. Bank of America led the way lower with a nasty 3.4% selloff.

Elevated volume accompanied the descent, suggesting this was an institutionally driven exodus. The groundswell in participation adds urgency to the bearish signal. With major resistance at $30 holding firm and the banking sector ousted to the doghouse, I suggest steering clear of BAC stock for now.

On the options trading front, calls won the day despite the beatdown. Activity ramped to 169% of the average daily volume, with 363,363 total contracts traded. 68% of the take came from call options.

The high uncertainty lifted implied volatility to 24% which, incidentally, places it at the 24th percentile of its one-year range. Premiums are now pricing in daily moves of 43 cents or 1.5%.

Netflix (NFLX)

Netflix scoffed at the post-Fed swoon and blasted to a new five-month high amid heavy accumulation. Only one more hurdle remains before the media giant returns to its 2019 peak and record high of $423.21 – the clear ceiling at $385.

With two months of sideways congestion, Netflix is well-rested and has plenty of gas in the tank to see follow-through after yesterday’s pop.

On the options trading front, calls easily won the contest. Total activity jumped to 155% of the average daily volume, with 235,435 total contracts traded. 67% of the trading came from call options alone.

The increased demand drove implied volatility higher on the day to 50%, which also places it at the 50th percentile of its one-year range. That means premiums are officially pumped and short option strategies are now attractive. Bull put spreads are my strategy of choice here.

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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