Heading into the open, futures on the Dow Jones Industrial Average are down 0.01% and S&P 500 futures are lower by 0.02%. Nasdaq-100 futures have added 0.07%.
In the options pits, put volume sank yesterday, helping to drive overall volume to below-average levels. Specifically, about 15.8 million calls and 13.7 million puts changed hands on the session.
Turning to the CBOE, put trading actually increased relative to calls and pushed the single-session equity put/call volume ratio to 0.65. Meanwhile, the 10-day moving average remains at 0.59.
Traders flocked to the following three stocks. Bed Bath and Beyond (NASDAQ:BBBY) soared 22% on news that three activist investors are trying to oust the struggling company’s board and CEO. Disney (NYSE:DIS) rallied back 2.2% to recoup some of its recent losses due to the closure of its deal to purchase media assets from Twenty-First Century Fox (NASDAQ:FOXA). Finally, traders were jockeying for positions in AT&T (NYSE:T) call options ahead of its looming breakout.
Let’s take a closer look:
Bed Bath and Beyond (BBBY)
The secular decline in Bed Bath and Beyond stock has finally reached the point where activist investors are campaigning for change. Their bid to oust the company’s board of directors and CEO had shareholders cheering yesterday and drove the stock up 22%. Talk about an ego blow to the current captain of the sinking ship. It speaks volumes that the mere thought of his forced removal is sending the stock to the moon.
Color me skeptical that the gains stick. At least some giveback after such a rapid rise is more than justified, particularly given that the company’s earnings and sales decline still stinks to high heaven. Expect continued volatility as the news gets digested, and avoid the temptation to chase new longs here.
On the options trading front, put volume exploded on the day. Activity ballooned to 1,081% of the average daily volume, with 121,028 total contracts traded. 75% of the trading came from put options alone.
With increased uncertainty comes higher implied volatility. The metric popped to 81%, placing it at the 60th percentile of its one-year range. Premiums are now pricing in daily moves of 87 cents, or 5.1%.
Disney (DIS)
The inevitable snap-back in Disney stock following its high-volume slide finally arrived on Tuesday. With a support pivot now formed, we get to see if last week’s plunge was a one-off or the start of a more ominous downtrend. I’m betting on the former.
DIS stock remains below all major moving averages, so much work remains before buyers wrest back control of its daily trend. However, the past year of eight months of trading has seen the mouse house locked in a range, so momentum has been lacking for a while now.
Monday’s low at $107.32 is the level to watch. As long as we remain above it, bulls deserve the benefit of the doubt.
The rally stirred up demand for call options. Activity grew to 185% of the average daily volume, with 141,642 total contracts traded. Calls accounted for 63% of the take.
With downside pressures easing, implied volatility fell back to 25%, which lands it at the 40th percentile of its one-year range. Premiums are baking in daily moves of $1.71, or 1.6%.
AT&T (T)
AT&T is itching for a breakout above its 200-day moving average. The price action this year has taken on the form of an ascending triangle showing increased demand beneath the surface. Yesterday’s rally carried the telecom titan directly into the top end of its pattern, sparking interest in call options.
With further rate hikes off the table and even a rate cut starting to be priced in before the end of 2019, investors are flocking to the juicy dividends of telecoms and REITs. T stock currently boasts a dividend yield of 6.50%.
On the options trading front, calls outpaced puts by a wide margin. Total activity ticked higher to 108% of the average daily volume, with 81,127 total contracts traded. Calls added 69% to the sum.
Implied volatility fell on the session to 20% and also sits at the 20th percentile of its one-year range. Premiums are pricing in daily moves of 39 cents or 1.2%
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.
