Friday’s Vital Data: Charles Schwab, Square and Alibaba

U.S. stock futures are trading lower this morning in a continuation of yesterday’s plunge. Just one day after investors had to digest the first rate cut in a decade, the trade war was thrust back onto center stage. During a tweetstorm, President Trump announced an additional 10% tariff on $300 billion worth of Chinese goods.

Friday's Vital Data: Charles Schwab, Square and Alibaba

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Heading into the open, futures on the Dow Jones Industrial Average are up 0.07%, and S&P 500 futures are lower by 0.18%. Nasdaq-100 futures have shed 0.56%.

Yesterday’s surprise Trump Tweet sent the options pits into a tizzy. Trade volumes exploded with puts slightly outpacing calls. By day’s end, about 24.7 million calls and 25 million puts had changed hands.

The fear fest was enough to send the CBOE single-session equity put/call volume ratio to 0.75 — a two-month high. Meanwhile, the 10-day moving average bumped up to 0.67.

Options activity was hot in Chinese stocks, banks and companies with earnings last night. Alibaba (NYSE:BABA), Charles Schwab Corporation (NYSE:SCHW) and Square (NYSE:SQ) all found themselves atop the most-active options leaderboard.

Let’s take a closer look:

options trading

Charles Schwab Corporation (SCHW)

Yesterday’s escalation in the trade war sparked a widespread flight to safety. Stocks died while bonds and gold flew. The ramp in bond prices sent interest rates plunging. By day’s end, the 10-year yield had fallen to a two-and-a-half-year low at 1.87%.

With banks being one of the more sensitive industries to interest rate movements, it should come as no surprise that the financial sector was one of the hardest-hit areas Thursday. Charles Schwab (NYSE:SCHW) fell 4.5% on huge volume. With its price now below the 200-day, 50-day and 20-day moving averages, sellers have wrested control of the trend across all time frames.

On the options trading front, demand was shared equally among calls and puts. Activity rocketed to 847% of the average daily volume, with 167,784 total contracts traded. Calls claimed 52% of the session’s sum.

The increased demand drove implied volatility to 29% or the 25th percentile of its one-year range. Premiums are now pricing in daily moves of 75 cents or 1.8%.

Square (SQ)

While the broader market had the Fed and a trade war to wrestle with, Square was gearing up for last night’s quarterly report. SQ stock was able to end the day up slightly but is falling 10% after hours to $73. It faces a test of its 50-day moving average at the open. Time will tell if buyers rise to the occasion and buy the dip or let further follow-through throw a wrench into its once robust uptrend.

For the second quarter, Square saw revenue of $563 million, which is a 46% jump over the year-ago period. That translated into a net profit of just over $100 million or 21 cents per share. Both measures bested analyst estimates, but the Street was not happy with Square’s guidance for the third quarter. The company expects profits in the 18 to 20 cents range, and analysts were aiming for 22 cents.

On the options trading front, traders favored calls ahead of the event. Total activity popped to 276% of the average daily volume, with 170,478 contracts traded; 61% of the trading came from call options alone.

The options board was pricing in a $5.25 or 6.4% gap after earnings. That means this morning’s 10% whack falls well outside of expectations and should bring solid profits to traders swinging long volatility trades into the event.

Alibaba (BABA)

Given the catalyst for yesterday’s beatdown, it should come as no surprise that Chinese stocks were particularly hard hit. Alibaba shares were rocked 4.3%, slicing below multiple moving averages in the process. Its price trend is now one banana peel away from reversing into a downtrend.

A close below $165 will seal the deal, and signal bears are back in town. The volatility surge comes as traders are prepping for the company’s next earnings release on Aug. 15.

On the options trading front, calls led the way despite the day’s thrashing. Activity swelled to 208% of the average daily volume, with 310,204 total contracts traded. Calls accounted for 59% of the day’s take.

Implied volatility zoomed to 39%, placing it at the 39th percentile of its one-year range. Premiums are now baking in daily moves of $4.09 or 2.5%.

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.

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