Wednesday’s Vital Data: Square, Amazon and Advanced Micro Devices

Options activity tells you what to expect in SQ, AMZN and AMD stock

U.S. stock futures are galloping higher ahead of the bell after Jerome Powell confirms what the market has been forecasting for months. The Fed will slash interest rates as needed to counteract crosscurrents hurting the economy.

Heading into the open, futures on the Dow Jones Industrial Average are up 0.36%, and S&P 500 futures are higher by 0.38%. Nasdaq-100 futures have added 0.68%.

In the options pits, put activity fell off a cliff even as overall volume came in well below average levels. The summer doldrums are in full swing. At closing time, only 15.4 million calls and 12 million puts had changed hands on the session.

The ebb in put demand was enough to sink the CBOE single-session equity put/call volume ratio down to 0.58 — a one-week low. Meanwhile, the 10-day moving average held its ground at 0.62.

Options traders zeroed in on tech stocks yesterday. Square (NYSE:SQ) zoomed higher following an upgrade by Raymond James. Amazon (NASDAQ:AMZN) breached resistance and buyers swarmed. Finally, Advanced Micro Devices (NASDAQ:AMD) was flooded with activity after its price target was raised to $37 by Nomura Instinet.

Let’s take a closer look:

Wednesday's Vital Data: Square, Amazon and Advanced Micro Devices options trading

Square (SQ)

Square shares were the belle of the ball Tuesday. Buyers swarmed after Raymond James analyst John Davis upgraded the mobile payments company from underperform to market perform. Davis cited Square’s new debit card as the cause for his bullish shift, suggesting it could boost revenue some $100 million by the end of 2020.

Traders took the upgrade as a clarion call to buy SQ stock with both hands. By day’s end, SQ soared 6.2% on huge volume. The jump created a clear breakout over the $74 resistance zone and placed the stock in a prime position to attack its 2019 high of $82.78.

On the options trading front, traders came after calls with a vengeance. Activity rocketed to 327% of the average daily volume, with 163,599 total contracts traded; 69% of the trading came from call options alone.

Implied volatility inched higher to 43%. At the 13th percentile of its one-year range, SQ stock options are still cheap. Premiums are baking in daily moves of $2.10 or 2.7%, so adjust your expectations accordingly.

Amazon (AMZN)

SQ wasn’t the only tech stock embraced by buyers. Amazon shared the spotlight with a breakout of its own. The high volume rally carried AMZN stock to a fresh nine-month high. Chart watchers are eyeing its all-time peak of $2,050 as the next upside target, and I see no reason why it won’t get there.

Amazon bulls took to the options market to express their enthusiasm. Calls dominated the session and claimed 62% of the day’s volume. All-in, total activity grew to 163% of the average daily volume, with 255,192 contracts changing hands.

Implied volatility inched lower to 27% or the 16th percentile of its one-year range. Premiums are pricing in daily moves of $33.20 or 1.7%. Long option plays like bull call spreads are the way to go here.

Advanced Micro Devices (AMD)

Advanced Micro Devices has been a mainstay among momentum traders all year long. Yesterday’s 4% pop was simply the latest in a long line of breakouts delivering profits to shareholders. The gains came following the company’s release of its new version of Ryzen desktop processors and Radeon graphics cards, which received high praise from analysts.

Nomura Instinet’s analysts, David Wong, lifted his price target from $33 to $37.

On the options trading front, calls were the hot ticket for the session. Activity ticked higher to 122% of the average daily volume, with 385,209 total contracts traded. Calls accounted for 68% of the day’s take.

Implied volatility held steady at 57% or the 32nd percentile of its one-year range. Premiums are pricing in daily moves of $1.19 or 3.6%.

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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