Wednesday’s Vital Data: Target, General Electric and Apple

Options activity provides a look at expectations on TGT, GE and AAPL stock

U.S. stock futures are rebounding nicely on robust earnings reports from Lowes (NYSE:LOW) and Target (NYSE:TGT).

Wednesday's Vital Data: Target, General Electric and Apple
Source: Shutterstock

Ahead of the bell, futures on the Dow Jones Industrial Average are up 0.77%, and S&P 500 futures are higher by 0.84%. Nasdaq-100 futures have added 0.86%.

In the options pits, calm has returned, and the overall volume is sinking like a stone. Calls outpaced puts despite the down day with about 14.4 million calls versus 13.1 million puts changing hands on the session.

Meanwhile, over at the CBOE, the single-session equity put/call volume ratio rallied back to 0.69, landing it in the center of its recent range. Remember, extremes in this reading are the actionable signals. When it’s fiddling in the middle, it signals business as usual. The 10-day moving average continues to unwind its rally falling to 0.73.

Options activity was buzzing in Target, General Electric (NYSE:GE) and Apple (NASDAQ:AAPL) yesterday.

Let’s take a closer look:

options trading charts

Target (TGT)

Inverted yield curves and deteriorating economic data have hampered stocks for weeks now. If you’ve wondered how retailers like Target have fared with all the potential headwinds, then wonder no longer. They’re smashing it. This morning Target reported second-quarter earnings numbers that surpassed the Street’s expectations.

Buyers are swarming, sending TGT stock up 17% to $100. Let’s look at the key metrics behind the morning’s ramp to record highs. For the quarter, the company earned $1.82 per share on sales of $18.42 billion. Analysts were forecasting $1.62 EPS on $18.34 billion revenue. Same-store sales also blew through forecasts, rising by 3.4% versus expectations for 2.9%.

The posture of Target’s price chart was holding steady ahead of this morning’s report. The powerful gap places an exclamation point on the uptrend and should set a bullish tone for the coming quarter.

Earnings anticipation lit a fire under options trading. Total activity screamed to 696% of the average daily volume, with 179,908 contracts traded. Calls contributed 62% to the tally.

Implied volatility was running hot at 40% ahead of this morning’s report. That places it at the 77th percentile of its one-year range. Premiums were pricing in a gap of $5.36 or 6.3%, so today’s 17% pole vault blew the doors off of expectations and will deliver massive profits to any traders holding long volatility trades like straddle into the number.

General Electric (GE)

This year’s recovery in General Electric shares all but unraveled over the past two weeks, and yesterday’s 3% whack shows sellers still dominate the landscape. The big news that continues to hand over the head of GE stock is last week’s bearish research piece by Harry Markopolos’ calling GE “a bigger fraud than Enron.”

Although GE did bounce back strongly after the one-day, 11% plunge, the recovery stopped short of healing all the damage, and we’ve since seen shares rollover. The $9 zone was a huge support zone throughout the year and now looms overhead as significant resistance. It is the spot where sellers emerged to thwart the rebound and signals we’re now in a sell-the-rally environment.

The sentiment is souring, the fundamentals are weak, and the technical picture looks terrible. If ever there was a toxic brew for lower prices, this is it.

On the options trading front, puts outpaced calls by a modest margin. Activity crept higher to 119% of the average daily volume, with 324,254 total contracts traded. Puts added 59% to the session’s sum.

Implied volatility ticked up to 53% landing it at the 49th percentile of its one-year range. Premiums are baking in daily moves of 28 cents or 3.3%.

Apple (AAPL)

Last month’s earnings report introduced volatility to Apple shares, and the outsized swings continue to this day. Fortunately, the past two weeks of gains have returned AAPL stock to the scene of its earnings gap. Sellers aren’t ceding ground without a fight, however. The last two sessions have seen intraday bearish reversals creating a pair of topping tails that reflect a battle at resistance.

This morning’s 1% gap higher will test sellers’ resolve once more. But with the 50-day and 20-day moving averages both pointing higher, I suspect it’s only a matter of time before we visit the next resistance zone at $220.

Even though the news was light for AAPL yesterday, the options trading was high enough to land Apple on the leaderboard. Traders favored calls over puts despite the late-day selloff. Total activity only added to 77% of the average daily volume, with 426,467 contracts traded. 61% of the trading came from call options.

Implied volatility inched higher on the day to 28%, pushing it to the 31st percentile of its one-year range. Premiums are now pricing in daily moves of $3.76 or 1.8%, so plan 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.

Article printed from InvestorPlace Media,

©2020 InvestorPlace Media, LLC