U.S. stock futures are circling unchanged this morning as markets digest the gains from a two-day rally.
Heading into the open, futures on the Dow Jones Industrial Average are up 0.01%, and S&P 500 futures are lower by 0.05%. Nasdaq-100 futures have shed 0.02%.
Optimism permeated the options pits yesterday with put volume falling dramatically. Overall volume returned to average levels with 18.5 million calls and 15.3 million puts changing hands on the session.
Over at the CBOE, the action was similar with calls leading the charge. The single-session equity put/call volume ratio plunged to 0.55 — a one-month low. Meanwhile, the 10-day moving average continued its rollover by dropping to 0.73.
Let’s take a closer look:
Home Depot (HD)
Home construction giant, Home Depot, released fiscal second-quarter earnings this morning. Investors are cheering the mixed results, and HD stock is up 2.5% at the time of this writing.
The company missed sales estimates by a whisker and lowered its full-year forecasts citing trade war concerns, but still delivered a bottom-line beat for the quarter. Revenue came in at $30.84 billion versus estimates for $30.99 billion. Adjusted earnings-per-share were $3.17 versus $3.08 expected.
HD stock performed poorly over the past month alongside the broad market beatdown. But, with yesterday’s 2% pop and this morning’s additional gains, it’s well on its way to reclaiming all that has been lost.
If it holds, today’s gap will propel HD back above its 20-day and 50-day moving average, clearing horizontal resistance in the process. The prior highs near $219 are the next upside target.
On the options trading front, traders favored calls ahead of the release. Activity swelled to 384% of the average daily volume, with 98,041 total contracts traded. Calls accounted for 58% of the tally.
The options board was pricing in a 3% gap, so this morning’s 2.5% jump is just inside of expectations and should deliver a slight win to volatility sellers this morning.
Baidu approached its second-quarter earnings release in desperate need of a win. Shares of the Chinese internet company are 63% off last year’s high and have one of the worst looking charts in the market.
Fortunately, Wall Street likes the results, and BIDU stock is up 10% premarket. This comes on the heels of yesterday’s 7.8% rally. The company earned 10.11 yuan per share, nearly doubling estimates for 6.12 yuan. Revenue grew to 26.3 billion yuan compared to forecasts of 25.76 billion yuan.
On the options trading front, calls were the hot ticket during yesterday’s stock surge. Total activity climbed to 228% of the average daily volume, with 148,632 contracts traded; 66% of the trading came from call options alone.
Given last quarter’s dramatic gap post-earnings, implied volatility was sky-high ahead of this week’s report. Premiums were pricing in a 10% move, which places this morning’s jump right in-line with expectations.
Microsoft shares have led the tech sector all year long and remain one of the strongest stocks on the planet. Yesterday’s 1.7% rally returned MSFT stock to the north side of its 20-day and 50-day moving average, healing virtually all the damage inflicted during the market’s recent temper tantrum.
With last month’s record highs of $141.68 now a stone’s throw away, MSFT has a shot at reaching new heights over the coming weeks. Its absolute and relative strength should make it a mainstay on your watchlist.
On the options trading front, calls were the hot ticket on the session. Activity jumped to 151% of the average daily volume, with 379,711 total contracts traded. Calls added 85% to the session’s sum.
With uncertainty and fear easing, implied volatility fell to 25%, landing it at the 22nd percentile of its one-year range. Premiums are now pricing in daily moves of $2.14 or 1.5%.
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.