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Thursday’s Vital Data: Roku, AT&T and Netflix

Options activity tells you what to expect in ROKU, T and NFLX stock

U.S. stock futures are circling unchanged this morning after a quiet reaction to yesterday’s Federal Reserve announcement. The central bank cut its target rate by a quarter-point as expected, and the market is taking the news in stride. With the uncertainty of the meeting out of the way, it looks like the uptrend carrying stocks into this week is poised to continue.

Thursday's Vital Data: Roku, AT&T and Netflix
Source: Shutterstock

Against this backdrop, futures on the Dow Jones Industrial Average are up 0.05%, and S&P 500 futures are higher by 0.05%. Nasdaq-100 futures have added 0.04%.

In the options pits, put trading outpaced calls for the first time in weeks, even as overall volume climbed slightly above average levels. Specifically, about 18 million calls and 18.4 million puts changed hands on the session.

The return of put demand pushed the CBOE single-session equity put/call volume ratio up to 0.70 — a three-week high. Meanwhile, the 10-day moving average held its ground at 0.60.

Options traders zeroed in on three big names. Roku (NASDAQ:ROKU) was flooded with volume after two new players entered the streaming industry. AT&T (NYSE:T) continued to digest last week’s huge gains after news of a $3.2 billion stake taken by Elliot Management Corp. Finally, Netflix (NASDAQ:NFLX) shares are attempting to bottom but were rejected once more by overhead resistance.

Let’s take a closer look:

options trading

Roku (ROKU)

Roku shares crashed 14% Wednesday and are down another 4% premarket after news hit that competition is heating up in the streaming space. Facebook (NASDAQ:FB) unveiled a new line of Portal TV devices that includes streaming and video calling. Adding insult to injury, Comcast (NASDAQ:CMCSA) announced they would provide a free Xfinity Flex streaming box to its internet-only subscribers.

The meteoric ascent for ROKU stock was bound to succumb to gravity, but this certainly isn’t the type of mean reversion shareholders were hoping for. This month’s descent has been vicious and will take time to heal. With today’s down-gap, ROKU will open below its 50-day moving average and could soon test its earnings gap area at $117.

Thursday’s freefall lit a fire under options trading. Activity rocketed to 278% of the average daily volume, with 390,701 total contracts traded. Calls actually led the way, despite the drubbing, with 54% of the day’s take.

The increased demand drove implied volatility higher to 65%, placing it at the 29th percentile of its one-year range. If you’re looking for a knife catch play, selling bull put spreads is attractive here.

AT&T (T)

AT&T has one of the prettiest charts on the planet heading into today’s session. It’s uptrend scored increasing momentum during last week’s ascent, and the five-day pullback that has since formed is textbook. Volume has been light, and the size of the candles has been average, signaling garden-variety profit-taking instead of trend-ending distribution.

Two narratives driving the stock this month were the recent disclosure of a $3.2 billion investment in AT&T by activist investor Elliot Management Corp., and yesterday’s Wall Street Journal article revealing AT&T was “exploring parting with its DirecTV unit.”

As far as options trading goes, calls outpaced puts by a wide margin, accounting for 70% of Wednesday’s tally. Total activity grew to 185% of the average daily volume, with 224,808 contracts traded.

Implied volatility remains subdued at 21% or the 20th percentile of its one-year range.

Netflix (NFLX)

July’s disappointing earnings release sparked a downtrend in Netflix, and it has yet to reverse. Signs of slowing momentum are beckoning to bottom fishers, but patience may be needed. Yesterday’s drop reaffirmed resistance at $300 and gave traders a clear level to trade around. Get bullish above, but stay bearish below.

The news was light Wednesday, but that didn’t prevent options traders from landing NFLX stock on the most-actives leaderboard. Calls proved more popular than puts by adding 57% to the session’s sum. Activity climbed to 135% of the average daily volume, with 199,999 total contracts traded.

Implied volatility has been steadily creeping higher and pushed to 48% yesterday. That lands it at the 37th percentile of its one-year range and means premiums are now pricing in daily moves of $8.80 or 3%.

As of this writing, Tyler Craig held bullish options positions in ROKU. Check out his recently released Bear Market Survival Guide to learn how to defend your portfolio against market volatility.

Article printed from InvestorPlace Media,

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