Thursday’s Vital Data: Delta Air Lines, Micron and Disney

Options activity provides a look at expectations on DAL, MU and DIS stock

U.S. stock futures are trading higher to extend yesterday’s gains.

Ahead of the bell, futures on the Dow Jones Industrial Average are up 0.32%, and S&P 500 futures are higher by 0.15%. Nasdaq-100 futures have added 0.10%.

In the options pits, overall volume rallied back from the low readings seen around the July 4 holiday. Calls led the way with around 18.9 million contracts traded versus just 14.9 million for puts.

The disparity between the two was even more dramatic at the CBOE, where the single-session equity put/call volume ratio crashed to 0.51. That’s a new low for the year and reflects strong optimism surrounding yesterday’s rally. The 10-day moving average fell to 0.61.

Options traders swarmed the following three stocks: Delta Air Lines (NYSE:DAL), Micron (NASDAQ:MU) and Disney (NYSE:DIS).

Let’s take a closer look:

Thursday's Vital Data: Delta Air Lines, Micron and Disney, options trading

Delta Air Lines (DAL)

Earnings season will soon heat up, but a few early birds are already releasing their second-quarter numbers. This morning, Delta Air Lines reported earnings of $2.35 per share on revenue of $12.54 billion. Both metrics topped analyst estimates for the company to rake in $2.25 on $12.48 billion.

Traders are cheering the results with a bevy of buying in premarket trading. DAL stock is up 2% to $60.68 at the time of this writing. The up gap will land DAL at an exciting juncture. Last year’s peak of $61.32 is the high-water mark for the stock and could be finally taken out in the post-earnings euphoria. That would push Delta shares into record territory, making it an attractive stock to buy for strength seekers.

On the options trading front, calls were favored over puts ahead of the report. Activity rocketed to 505% of the average daily volume, with 93,982 total contracts traded. Calls claimed 63% of the day’s take.

The options board was pricing in a move of $1.99 or 3.3% after the earnings release, so this morning’s 2.20% jump is well within the expected range and should bring profits to traders who sold volatility into the number.

Micron (MU)

The post-earnings rally in Micron reached a fever pitch yesterday with the stock ramping another 3.75% higher. And that was after the gains were pared into the bell. At the intraday peak, MU stock was up 6.4%. Ever since last month’s quarterly report, institutions have been rushing back in. So says the multiplication in accumulation days revealed in the volume panel of the accompanying chart.

Yesterday’s boost carried MU to critical overhead resistance. The $44 zone has kept a lid on it for almost a year now, rejecting numerous rally attempts along the way. I have a feeling this time will be different. After some consolidation, that is. MU is hitting some extreme overbought readings and could use a bit of digestion before breaking out.

On the options trading front, calls outpaced puts by a modest margin. Total activity ramped to 189% of the average daily volume, with 344,455 contracts traded. Calls added 59% to the session’s sum.

The post-earnings volatility crush ended last week, and we’ve since seen a mild rise to 39%. Still, the metric sits at a lowly 6th percentile of its one-year range. That means options are cheap, and long premium plays are the way to go here.

Disney (DIS)

Disney shares have been flirting with a breakout to new highs for weeks now. And, well, yesterday it went for it. Buoyed by the bullish backdrop of the overall market, DIS stock finally blasted through the high of last month’s consolidation zone and tagged $144.25.

We did see a mild increase in volume, but it wasn’t as strong as some of the other accumulation days seen in June. Nonetheless, shareholders are cheering and eyeing $150 as the next upside target.

The underlying optimism in Disney was on full display in the options market. Traders went cuckoo for call options driving total activity to 158% of the average daily volume, with 190,471 contracts traded; 85% of the trading came from call options alone.

The increased demand pushed implied volatility up to 26%, placing it at the 46th percentile of its one-year range. With earnings looming less than a month from now, the high readings should persist over the coming weeks.

As of this writing, Tyler Craig held bullish options positions in DIS. Check out his recently released Bear Market Survival Guide to learn how to defend your portfolio against market volatility.

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