U.S. stock futures are flashing red this morning, suggesting the five-day buying binge may finally be ready to pause. If it does, it will be a well-deserved breather. Swing traders who bought the dip a week ago have enjoyed a relatively pain-free ride to profits.
In early morning trading, futures on the Dow Jones Industrial Average are up 0.02% and S&P 500 futures are lower by 0.03%. Nasdaq-100 futures have lost 0.14%.
In the options pits, volume returned in a big way with calls leading the charge. Approximately 20.8 million calls and 17 million puts changed hands on the session.
The large disparity between calls and puts finally pushed the CBOE single-session equity put/call volume ratio to the lower end of its 2019 range. At 0.52 it’s flirting with a notching a new low for the year. Contrarians will point to the extreme reading as a cautionary development, signaling that traders have become a bit too optimistic in the short run.
Every single stock atop the options leaderboard saw call options dominate. American Airlines (NASDAQ:AAL) took flight after Delta Air Lines (NYSE:DAL) upped their earnings forecast for the quarter. Advanced Micro Devices (NASDAQ:AMD) benefited from a buy rating and big price target from an analyst at Nomura. Finally, Twitter (NYSE:TWTR) notched a new two-month high.
Let’s take a closer look:
American Airlines (AAL)
Bulls descended on the airline industry after Delta Air Lines unexpectedly increased its earnings forecast for Q1 ahead of its April 9 report. The stock jumped 3% amid heavy volume and is up another 1.3% premarket. But apparently, buyers weren’t excited enough to bank on derivatives. Instead, it was Delta’s peer, American Airlines, that saw the most activity in its options.
Of the two, AAL stock is the uglier duckling on the price action front. It remains below both the 200-day and 50-day moving averages and is currently perched in the center of its six-month trading range. This makes it very challenging to get involved despite yesterday’s excitement in the options market.
Calls were the hot ticket on a day where total activity swelled to 349% of the average daily volume, with 135,831 total contracts traded. 78% of the sum came from call options alone.
Implied volatility remains subdued at 38%, or the 23rd percentile of its one-year range. Premiums are pricing in daily moves of 80 cents, or 2.4%.
Advanced Micro Devices (AMD)
If you ever wonder why Advanced Micro Devices sits atop the watchlist of momentum traders everywhere, then consider yesterday your answer. The stock soared 8.5% in response to good news. An analyst from Nomura initiated coverage on the company with a buy rating and rosy price target of $33. Reports that the company is set for a robust second half of the year due to a worldwide recovery in chip demand also spurred the buying.
Wednesday’s pole vault was a gift to anyone who bought the picture-perfect dip last week. If you missed it, I suggest exercising patience. Yesterday’s large-bodied candle makes it challenging to find a clean entry with low risk and high reward.
Not surprisingly, calls ruled the roost and helped to drive activity to 336% of the average daily volume. By day’s end, 908,861 total contracts traded with calls accounting for 61% of the tally.
The demand surge lifted implied volatility to 59%, which places it at the 35th percentile of its one-year range. Premiums are now baking in daily moves of $1.08, or 3.7%, so adjust your expectations accordingly.
Twitter (TWTR)
The bullish backdrop in the technology sector continues to pay dividends for Twitter. Its six-week rally reached fresh highs yesterday, bringing it a stone’s throw from finally filling last quarter’s earnings gap. Unfortunately, with mega-resistance looming overhead, hurdles remain before the blue bird becomes a viable buy candidate.
A cluster of pivot highs sits at $35 to $36.50, so look for TWTR stock to chew through them before chasing this run.
Yesterday’s 1.9% pop saw sufficient excitement to appear on the most-actives options leaderboard. As you would expect, calls drove the bus contributing 65% to the day’s total. Activity grew to 206% of the average daily volume, with 163,065 total contracts traded.
Implied volatility drifted sideways on the day and sits at 48%, or the 32nd percentile, of its one-year range. Premiums are baking in daily moves of $1.03, or 3%.
As of this writing, Tyler Craig held bullish positions in AMD. Check out his recently released Bear Market Survival Guide to learn how to defend your portfolio against market volatility.
