Monday’s Vital Data: Wells Fargo, Alibaba and Amazon

Options activity provides a look at expectations on WFC, BABA and AMZN stock

U.S. stock futures are trading higher this morning. The slight rebound comes after heavy selling pressure on Friday on reports that the White House was discussing potential investment restrictions for U.S. investors into China. Chinese stocks were among the day’s biggest losers with the iShares China ETF (NYSEARCA:FXI) falling 1.2% on its highest volume session of the month.

Monday's Vital Data: Wells Fargo, Alibaba and Amazon
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Against this backdrop, futures on the Dow Jones Industrial Average are up 0.22%, and S&P 500 futures are higher by 0.27%. Nasdaq-100 futures have added 0.40%.

In the options pits, put activity was hot throughout the session, and overall volume levels ended above-average levels. Specifically, about 19.7 million calls and 21 million puts changed hands on the day.

Meanwhile, over at the CBOE, the single-session equity put/call volume ratio slipped to 0.72. It’s still near its one-month high but didn’t see as much put demand relative to calls as on Thursday. The 10-day moving average continues to play catch-up to the metrics rise over the back-half of the month and now sits at 0.67.

Options traders zeroed in on a diversified list of equities on Friday. Wells Fargo (NYSE:WFC) soared on news that the bank finally found a new CEO. Alibaba (NYSE:BABA) was hit hard on all the drama surrounding Chinese stocks. Finally, Amazon (NASDAQ:AMZN) fell to a multi-month low on continued weakness out of technology stocks.

Let’s take a closer look:

options trading

Wells Fargo (WFC)

Wells Fargo shares surged on Friday after the banking giant finally announced a new CEO after months of searching. WFC stock popped 3.8% on its highest volume session since April, clearing a key intermediate-term resistance level in the process.

The company named Charles Scharf as their new Chief Executive. To help lure him away from his previous job at Bank of New York Mellon Corp,  WFC reportedly boosted his pay by 40%.

The technical posture of WFC stock now looks bullish. It sits above its 20-day, 50-day and 200-day moving averages and has climbed 17% off of this year’s low. Falling back below support at $47.50 would warrant reassessment, but until then, it’s game-on for buyers.

On the options trading front, traders came after calls with a vengeance. Activity jumped to 436% of the average daily volume, with 212,529 total contracts traded; 69% of the trading came from call options alone.

Implied volatility remains muted at 25% or the 19th percentile of its one-year range. Premiums are baking in daily moves of 80 cents or 1.6%.

Alibaba (BABA)

Friday’s news that the White House was toying with limitations on investments in China wreaked havoc on a broad swath of Chinese equities. Chief among the victims was Alibaba, which plunged 5.1% on its largest volume session since August’s earnings release.

The whack pushed BABA stock back below its 200-day moving average marking a wicked bearish turnaround for the stock. Just last week, BABA was pointing toward a tempting bullish breakout. Now, its price chart is a complete mess. The next major support zone is $150, so consider that a downside target if the bearish winds keep blowing.

On the options trading front, calls proved more popular than puts despite the beatdown. Total activity grew to three times the average daily volume, with 392,474 contracts changing hands. Calls added 55% to the day’s take.

The increased uncertainty pushed implied volatility up to 38%, landing it at the 36th percentile of its one-year range. Option prices now point toward daily moves of $3.98 or 2.4%, so set your expectations accordingly.

Amazon (AMZN)

Friday’s breach of the 50-day moving average in the Nasdaq-100 didn’t bode well for Amazon. The e-commerce juggernaut slipped to a four-month low, placing it on precarious footing.

Chart watchers were hoping that AMZN stock would hold support at $1,750, but it didn’t. And now a retest of June’s low at $1,675 looks likely. No matter how you slice it, with AMZN cruising below a falling 50-day, 20-day and flat 200-day moving average, sellers hold the upper hand.

On the options trading front, demand was split almost 50-50 during Friday’s drop. Activity grew to 175% of the average daily volume, with 279,199 total contracts traded.

Implied volatility has risen off the lows this month, but remains in the lower quartile of its range at the 21st percentile. With premiums still cheap, bear put spreads are attractive if you’re looking for a downside bet. Premiums are pointing toward daily moves of $30.34 or 1.8%.

As of this writing, Tyler Craig didn’t hold any positions in any of the aforementioned securities. For a free trial to the best trading community on the planet and Tyler’s current home, click here

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