U.S. stock futures are looking up this morning pushing equity indexes back to the upper end of their volatile trading range. For the S&P 500, the $2,940 level has been a graveyard in the sky where rallies go to die. Today, we’ll see if buyers can finally push through it.
Ahead of the bell, futures on the Dow Jones Industrial Average are up 0.54%, and S&P 500 futures are higher by 0.55%. Nasdaq-100 futures have added 0.54%.
Optimism’s return fueled call volumes in the options pits yesterday. Overall volume bumped higher than the past few trading sessions with about 17.9 million calls and 15.5 million puts changing hands.
Meanwhile, over at the CBOE, the single-session equity put/call volume ratio ticked slightly higher to 0.66. The spate of low readings seen during the market’s rise this week continues to pull the 10-day moving average lower. It closed just above 0.66.
Options traders favored calls in the most active stocks on Thursday. McDonald’s (NYSE:MCD) was flooded with activity ahead of today’s ex-dividend date. Twitter (NYSE:TWTR) is on the cusp of a breakout and the bullishness is drumming up call demand. Finally, Micron Technology (NASDAQ:MU) scored a robust rally but saw an uptick capture trading.
Let’s take a closer look:
Hamburgers and fries care little about the trade war. So says the chart of McDonald’s which boasts one of the best uptrends on the Street. This week’s rally returned MCD stock to within a whisker of new record highs. Its year-to-date gains of 24% are outpacing the S&P 500’s rise of 17%.
Today’s ex-dividend date lit a fire under options trading yesterday, launching McDonald’s to the top of the most-actives leaderboard. Dividend seekers buy call options for short-term control of MCD to capture some cash. This quarter’s payment of $1.16 translates into an annual yield of 2.12%.
As is always the case on the eve of the ex-dividend date, calls went bananas. Activity swelled to 202% of the average daily volume, with 78,958 total contracts traded; 91% of the trading came from call options alone.
Implied volatility dropped to 18%, placing it at the 19th percentile of its one-year range. That means prices are low and long premium plays are the way to go. Bull call spreads are my strategy of choice here.
Twitter is another stock remaining above the fray this month. The popularity of its options trading has created multiple appearances here at Vital Data. Thursday was no exception with its price rally drumming up options interest.
On the price front, TWTR stock is on the cusp of completing a month-long base or consolidation pattern. The sideways chop has fully digested last month’s robust earnings gains and is setting the stage for another leg higher. Watch for a break above $43.50 to signal the advance has begun.
Traders flocked to calls throughout the session. Total activity jumped to 115% of the average daily volume, with 91,629 contracts traded. Calls contributed 71% to the day’s take.
The stability of Twitter’s stock price is keeping implied volatility low. It closed Thursday at 38% or the 16th percentile of its one-year range. That said, the absolute level of IV is high enough to keep cash flow trades like naked puts interesting. So you have your pick of any number of bullish strategies here. Long calls or call spreads for aggressive directional bets and naked puts for high probability.
Micron Technology (MU)
The trade war troubles took a bite out of Micron Technology shares, but buyers returned this week at a critical moment. MU stock probed below its rising 50-day moving average before bulls emerged to defend support and keep its nascent uptrend intact. Yesterday’s upside follow-through confirmed their dominance and has the stock eyeing a breakout over short-term resistance.
A break above $45.50 should kick-off a run toward its prior peak near $49.
On the options trading front, puts drew a bigger crowd than calls and despite the stock rally total, activity grew to 106% of the average daily volume, with 127,469 contracts traded. Puts accounted for 54% of the session’s sum.
Implied volatility slumped to 47% placing it at the 30th percentile of its one-year range. Premiums are baking in daily moves of $1.31 or 2.9%, so set your expectations accordingly.
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.