U.S. stock futures are trading higher as equities try to find a bottom following their worst day of 2019. The S&P 500 and Nasdaq-100 are both down six days in a row. Monday’s plunge sent the CBOE Volatility Index to its second-highest reading of the year, signaling widespread panic.
After a volatile after-hours session, futures are pointing toward a higher open. Futures on the Dow Jones Industrial Average are up 0.95%, and S&P 500 futures are higher by 0.99%. Nasdaq-100 futures have added 1.22%.
In the options pits, put volume exploded and exceeded Friday’s already high reading. By the closing bell, over 23.8 million calls and 30.1 million puts traded.
Over to the CBOE, the single-session equity put/call volume ratio remained sky-high at 0.84. This confirms the extreme fear readings matched by the number of puts traded and the VIX spike. The 10-day moving average climbed to 0.71 and is fast approaching its highest levels of 2019.
Options activity for individual equities surprisingly saw calls favored in a few names. Alibaba (NASDAQ:BABA) suffered amid the trade war fallout. Disney (NYSE:DIS) calls were active ahead of tonight’s earnings report. Finally, the post-earnings plunge pushed into its fourth consecutive day for Advanced Micro Devices (NASDAQ:AMD).
Let’s take a closer look:
Chinese stocks find themselves victims of the trade war escalation. With uncertainty and fear surrounding U.S.-China relations turned up to 11, investors are fleeing anything China-related in droves. BABA stock suffered its sixth straight down day, falling 4.6% Monday.
The descent pushed the technology giant well below all major moving averages. If the next support zone at $149 doesn’t hold, a move back to $130 could be in the cards.
On the options trading front, calls surprisingly outpaced puts despite the day’s thrashing. Total activity grew to 201% of the average daily volume, with 309,664 contracts traded. Calls accounted for 63% of the tally.
With fear zooming to the moon, implied volatility shot to 44% or the 50th percentile of its one-year range. Premiums are official juiced and short option strategies now desirable. The expected daily moves are $4.22 or 2.7%, so set your forecasts accordingly.
Disney shares have held up like a champ considering the bloodbath elsewhere. Hopes for a solid earnings report are no doubt keeping the Mouse House aloft. The company is slated to report earnings tonight.
Yesterday’s 2.4% whack was enough to push DIS stock below its 50-day moving average for the first time since March. All told, the five-day pullback has taken 6% off its share price. Thus far, it’s just a flesh wound — a garden variety pullback and nothing more. Disney remains one of the strongest and best-looking charts in the market.
On the options trading front, calls proved more popular than puts. Activity jumped to 127% of the average daily volume, with 129,957 total contracts traded. Calls claimed 70% of the session’s sum.
Broad market turmoil combined with tonight’s earnings lit a fire under implied volatility, driving it to 33% or the 79th percentile of its one-year range. Premiums are now pricing in an earnings gap of $4.63 or 3.3%.
Advanced Micro Devices (AMD)
Advanced Micro Devices, once the king of the land, has been laid low after earnings. The recent trade war drama hasn’t helped either. Semiconductors have been disproportionately beaten. Yesterday’s 4.9% slide extended AMD stock’s peak-to-trough drawdown to 20.7%.
Given the plethora of potential support zones looming beneath, however, I suggest viewing this as a buying opportunity — or at least a chance to generate high probability cash flow with naked put plays.
On the options trading front, put volume won the day. Total activity rocketed to 134% of the average daily volume, with 400,811 contracts traded. Puts were 56% of the day’s take.
Implied volatility climbed on the session to 51% or the 23rd percentile of its one-year range. The expected daily move is 91 cents or 3.25%.
As of this writing, Tyler Craig held bullish options positions in AMD. Check out his recently released Bear Market Survival Guide to learn how to defend your portfolio against market volatility.