U.S. stock futures are hovering near unchanged this morning. The outlier move yesterday came from small-caps with the Russell 2000 falling 1.2%. The index remains well off its 2018 peak. With economic data continuing to come in soft and rate cuts on the horizon, investors are favoring larger companies over the little guys.
Heading into the open, futures on the Dow Jones Industrial Average are up 0.06% and S&P 500 futures are lower by 0.01%. Nasdaq-100 futures have shed 0.07%.
In the options pits, call volume outpaced puts while overall volume levels sunk beneath average levels. By day’s end, some 15.9 million calls and 12.3 million puts had changed hands. Put demand returned at the CBOE with the single-session equity put/call volume ratio rallying back to 0.59. Meanwhile, the 10-day moving average treaded water at 0.62.
There were three notable stocks that saw heavy options trading. Caesars Entertainment (NASDAQ:CZR) shares went flying on news that the company is merging with Eldorado Resorts (NASDAQ:ERI). Barrick Gold Corp (NYSE:GOLD) benefited from the mad dash into gold. Finally, Micron Technology (NASDAQ:MU) was flooded with activity ahead of tonight’s earnings announcement.
Let’s take a closer look:
Caesars (CZR)
Caesars shares rocketed 14.5% Monday to close near a 52-week high after news hit that the Vegas-based casino operator is merging with Eldorado Resorts. The price tag for the Caesars empire was around $8.58 billion in cash and stock or $12.75 per share. After the deal, Eldorado will own 51% of the combined company.
We could hyper-analyze CZR’s stock chart, but why bother? CZR has already jumped close to the buyout price and will begin drifting over the coming weeks until the deal is finished. If uncertainty arises over the merger, you can bet some of yesterday’s gains will be quickly lost. But such an outcome boasts low probability and is entirely unpredictable.
On the options trading front, traders came after calls with a vengeance. Activity ramped to 472% of the average daily volume, with 195,223 total contracts traded; 89% of the trading came from call options alone.
With future fluctuations in CZR’s stock price now unlikely, implied volatility plunged to 27% placing it at the lowest levels of the past year. Option premiums are now only pricing in daily moves of 19 cents.
Barrick Gold (GOLD)
The raging bull market in gold prices has gold mining stocks in the spotlight. Barrick Gold shares have rallied for eighteen of the last nineteen trading session. Yesterday’s 4.1% jump took GOLD stock near a two-year high and had options traders swarming.
This is the best GOLD has looked from a price action perspective in years. The ascent has been strong enough to drag the 20-day, 50-day and 200-day moving averages higher. And the groundswell in volume is helping confirm the breakout’s staying power.
Additional buying over the coming weeks should propel GOLD to its next resistance zone at $18.40.
On the options trading front, calls were heavily favored over puts. Total activity grew to 289% of the average daily volume, with 78,737 contracts changing hands. Calls claimed 73% of the day’s take.
Implied volatility ramped to 37% or the 56th percentile of its one-year range. Premiums are officially ripe for the selling. Strategies like naked puts and covered calls are now appealing.
Micron Technology (MU)
Micron ended near unchanged on the day but is seeing heavy trading in its options ahead of Tuesday night’s earnings release. Let’s take a brief look at how things lie ahead of the main event.
On the technical analysis front, bears are dominating. May’s descent was severe enough to pull MU stock back below all major moving averages. Recovery attempts have taken place, but each quickly failed. Unless we get an upside surprise tonight, don’t bet against more downside. Last year’s low of $28.39 is the next stop.
As far as options trading goes, puts dominated Monday’s trading session. Total activity climbed to 141% of the average daily volume, with 180,753 contracts traded. Puts accounted for 53% of the sum.
Implied volatility is running hot into the number. At 54% it sits at the 53rd percentile of its one-year range. The expected move post-earnings is $2.15, which translates into 6.5%.
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.
