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Thursday’s Vital Data: Johnson & Johnson, Baidu and Bank of America

Options activity tells you what to expect in JNJ, BAC and BIDU

U.S. stock futures are inching higher this morning, but trade war worries still loom large, threatening to reject rally attempts.

Against this backdrop, futures on the Dow Jones Industrial Average are up 0.24%, and S&P 500 futures are higher by 0.39%. Nasdaq-100 futures have added 0.43%.

In the options pits, yesterday’s market meltdown pushed put volumes well above calls. Over 21.7 million puts traded versus only 17.9 million for calls.

Interestingly, the groundswell in put demand didn’t transfer over to the CBOE, where the single-session equity put/call volume ratio fell to 0.63. The 10-day moving average also succumbed to gravity falling to 0.70.

Options trading was hot in the following three stocks: Johnson & Johnson (NYSE:JNJ), Baidu (NASDAQ:BIDU) and Bank of America (NYSE:BAC).

Let’s take a closer look:

Thursday's Vital Data: Johnson & Johnson, Baidu and Bank of America

Johnson & Johnson (JNJ)

Opioids strike again. On Tuesday it was Teva Pharmaceuticals (NYSE:TEVA) that fell prey to Oklahoma state’s wrath; today, it was Johnson & Johnson. The drug giant tumbled 4.19% to a new four-month low on its largest volume session of the year after Oklahoma Attorney General Mike Hunter called out the company for being “the kingpin behind this public health emergency.”

For the full story, see here.

With the plunge, JNJ stock shattered multiple support zones and now sits well below all major moving averages. The next two support zones beckon at $125 and $121. Until it climbs back above the $140 ceiling, future rallies are likely selling opportunities.

On the options trading front, puts ruled the roost. Total activity rocketed to 413% of the average daily volume, with 95,268 contracts traded. Puts accounted for 54% of the sum.

The demand surge lit a fire under implied volatility, driving it to 24% or the 51st percentile of its one-year range. That places it at the highest reading since January, signaling premiums are officially pumped. The daily expected move is now $1.98 or 1.5%.

Baidu (BIDU)

Ever since Baidu’s May 16 earnings announcement sucker punched the stock, it has been unable to get off the mat. Indeed, every single intraday rally has been stuffed in short order. With yesterday’s slight drop, BIDU fell to a fresh three-and-a-half year low.

The news was light yesterday, so I’m chalking up its presence atop the options leaderboard to continued fallout of its disastrous quarterly report. While I’d love to craft a compelling narrative for a price recovery, the technicals don’t support it. BIDU is way oversold, yes, but it’s for a good reason. The easier path is to short rallies.

On the options trading front, traders swarmed the put side of the aisle. Activity ballooned to 307% of the average daily volume, with 220,510 total contracts traded; 87% of the trading came from put options alone.

Meanwhile, implied volatility continues to hover near the middle of its range at 37%. That places it at the 41st percentile and translates into $2.64 daily expected moves.

Bank of America (BAC)

Plunging bond yields and an inverted yield curve have returned to scare the children. Recession talk is now in vogue and bank stocks are suffering alongside everything else. Bank of America quietly slipped to a two-month low yesterday with heavy action in its options trading.

On the charting front, BAC stock hasn’t budged since January’s earnings release sent the stock soaring. For five months it has been unable to escape the gravitational pull of $29. As a result, its moving averages are all crisscrossing back and forth to create an utter lack of trend signals. While this week’s drop could signal sellers have finally ended the stalemate, I’m skeptical. For now, I suggest betting on rangebound behavior to persist.

On the options trading front, traders loved call options all day. Total activity climbed to 126% of the average daily volume, with 308,296 contracts traded; 80% of the trading came from calls.

Implied volatility remains lackluster at 28% or the 35th percentile of its one-year range. Premiums are baking in daily moves of 48 cents or 1.7%.

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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