U.S. stock futures are diverging this morning due to differing earnings announcements driving some sectors higher, but others lower.
Heading into the open, futures on the Dow Jones Industrial Average are up 0.22%, and S&P 500 futures are lower by 0.04%. Nasdaq-100 futures have shed 0.28%.
In the options pits, volume patterns were lackluster yesterday with put demand especially depressed. Specifically, about 18.3 million calls and 13.4 million puts changed hands on the session.
Meanwhile, over at the CBOE, the action remains as uninspiring as ever. The single-session equity put/call volume ratio inched lower to 0.61 and is in the dead center of its 2019 range. The 10-day moving average held its ground near its low for the year at 0.59.
Options traders swarmed in the following three names. Alphabet (NASDAQ:GOOG, NASDAQ:GOOGL) saw renewed options interest ahead of last night’s earnings report which suffered its worst revenue miss in years. Bank of America (NYSE:BAC) benefited from a resurgence in bank stocks. Finally, Twitter (NYSE:TWTR) halted its three-day slide to rally 2.9% higher.
Let’s take a closer look:
Alphabet’s first-quarter earnings missed revenue expectations and the stock is down 7.6% premarket. The search giant garnered $36.34 billion falling roughly $1 billion short of analysts’ estimates of $37.33 billion. Earnings-per-share exceeded forecasts at $11.90 versus $10.61, but it wasn’t enough to mask the magnitude of the sales miss.
With GOOGL stock set to open down $100, it will give back the last two weeks of gains and re-test its rising 50-day moving average at the open. Were it not for the recent surge in its stock price, this morning’s flop may have done more lasting damage to its trend. As long as GOOGL can stay on the north side of $1,150, the longer-term uptrend remains healthy. A breach below, however, and things turn nasty.
On the options trading front, Alphabet was the belle of the ball attracting more attention than anyone. Calls outpaced puts by a modest margin. Activity swelled to 371% of the average daily volume, with 97,345 total contracts traded. Calls claimed 61% of the take.
Option premiums were running cheap ahead of earnings by baking in a mere $40 or 3.1% gap. With the stock down $100 or 7.6% right now that means volatility buyers into the event are awaking to big profits.
Bank of America (BAC)
Financial stocks were booming Monday with many of the biggest banks scoring breakouts. Bank of America (NYSE:BAC) led the charge rising as much as 2.7% before profit taking pared the gains into the close.
High volume accompanied the rally confirming institutions were net buyers on the day. Before Monday, BAC stock was stuck in a three-month trading range. Last week we saw tight consolidation directly beneath resistance suggesting bulls were prepping for a breakout.
Look for BAC to head for a retest of last year’s $33.05 high water mark.
On the options trading front, optimistic traders gobbled up call options all day. Activity climbed to 259% of the average daily volume, with 473,835 total contracts traded; 76% of the trading came from call options alone.
Implied volatility held steady on Monday and remains at the 18th percentile of its one-year range. If you’re inclined to join bulls, I suggest long premium plays like calls or call spreads to capitalize on the low prices.
After three days of profit-taking, TWTR bulls are back. Monday’s buying binge lifted the blue bird 2.9% amid average volume. With the rally, TWTR stock is now on the cusp of breaching the high of its earnings day reaction ($40.53). On the whole, the price action remains compelling and points to higher prices.
The next upside target is $43 and would finally fill last July’s large gap.
On the options trading front, traders came after calls with a vengeance. Activity grew to 137% of the average daily volume, with 156,260 total contracts traded. Calls dominated the day, accounting for 80% of the trading.
Implied volatility ticked higher on the day to 35%, but remains extremely low at the 12th percentile of its one-year range. Premiums are pricing in daily moves of 88 cents or 2.2%.
As of this writing, Tyler Craig held bullish options positions in TWTR. Check out his recently released Bear Market Survival Guide to learn how to defend your portfolio against market volatility.