U.S. stock futures are trading lower this morning as Wall Street gears up for a speech from Federal Reserve Chairman Jerome Powell on Wednesday before the House Financial Services Committee.
Ahead of the bell, futures on the Dow Jones Industrial Average are down 0.38%, and S&P 500 futures are lower by 0.34%. Nasdaq-100 futures have shed 0.34%.
In the options pits, put volume sank like a stone yesterday despite the market pullback. This suggests fear is being kept at bay and the selling we’re seeing is garden variety profit-taking. By day’s end, 16.7 million calls and just 12.3 million puts changed hands on the session.
The summer doldrums continue to produce lackluster readings in the CBOE single-session equity put/call volume ratio. It inched higher to 0.63, while the 10-day moving average climbed to 0.62. With both measures in the center of their three-month range, it leaves little to discuss regarding fear or complacency.
Options trading ballooned in the following three stocks. AT&T (NYSE:T) was flooded with activity ahead of today’s dividend payment. Apple (NASDAQ:AAPL) shares slipped after being downgraded on poor iPhone sales. Finally, United States Steel (NYSE:X) suffered a high-volume drop that broke major support.
Let’s take a closer look:
Dividend plays took the top three spots of the leaderboard, but I’ve chosen to focus on AT&T because of its compelling price chart. The telecom titan has put together quite the one-month rally. The 8% jump has T stock now testing a key resistance zone at $34.30.
With its ceiling looming large and overbought readings flashing, I suggest caution at chasing the shares here. A pullback or pause will provide lower-risk entries. Remember, AT&T is a stodgy dividend payer, not some high-flying tech stock prone to ignore overstretched readings.
The real reason for AT&T’s explosion in options trading is today’s ex-dividend date. For holders of record, a 51 cent cash payment will be doled out. Institutions used calls to control the stock for long enough to capture the dividend. Based on its closing price of $34.25, the quarterly dividend payments result in an annual yield of 5.96%.
Implied volatility remains at the low end of its one-year range — the 20th percentile. So, if you’re inclined to play options here, buying them is the way to go.
Apple shares suffered a setback Monday, falling as much as 2.8% during the trading session. The cause for the sudden slip was a downgrade by Rosenblatt Securities analyst Jun Zhang from Neutral to Sell. Zhang pointed toward worse-than-expected new iPhone sales and a slowdown period for Apple’s business as reasons for his bearishness.
From a technical analysis view, the price drop did little to change the uptrend that has defined AAPL stock since early June. It remains above a rising 20-day moving average, and buyers emerged to defend their turf yesterday. Watch the $195 support zone moving forward. A breach of that would reverse the uptrend sending warning signs to chart followers everywhere.
On the options trading front, the downgrade and accompanying down gap lit a fire under put demand. Total activity swelled to 139% of the average daily volume, with 532,795 contracts traded. Puts claimed 54% of the session’s sum.
Implied volatility popped to 29% placing it at the 35th percentile of its one-year range. Premiums are now pricing in daily moves of $3.67 or 1.8%.
United States Steel (X)
United States Steel shares officially ended their recovery attempt on Monday. The one-day, 7.9% beatdown slammed X stock back below its 50-day and 20-day moving averages and signaled the beginning of its next descent. If the history of its trend is any indication, a revisit of last month’s lows ($11.67) is a strong possibility.
Volume surged alongside the descent creating an ominous-looking distribution day. Both its short-term ascending trendline and horizontal support from a prior pivot were breached, adding urgency to the decline. Until the stock can return to the north side of its 50-day moving average, steer clear of bullish trades.
On the options trading front, surprisingly calls outpaced puts on the session. Total activity ramped to 152% of the average daily volume, with 78,654 contracts changing hands. Calls accounted for 53% of the tally.
Implied volatility shot through the roof to end at 63%. That places it at the 74th percentile of its one-year range, suggesting that premiums are ripe for the selling.
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.