Monday’s Vital Data: Costco, Apple and Netflix

Options activity provides a look at expectations on COST, NFLX and AAPL stock

U.S. stock futures are trading lower this morning. Ahead of the bell, futures on the Dow Jones Industrial Average are slipping 0.2%, and S&P 500 futures are down by 0.3%. Nasdaq-100 futures have lost 0.3%.

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In the options pits on Friday, calls and puts were in a dead heat throughout the session while overall volume fell back to average levels. Specifically, about 17.9 million calls and 17.9 million puts changed hands.

The drop in put demand from the lofty levels that accompanied the market swoon earlier in the week made a big impact at the CBOE. The single-session equity put/call volume ratio fell to 0.65 — a two-week low. Meanwhile, the 10-day moving average held its ground at 0.71.

Options trading was buzzing in a handful of heavy hitters of Friday, including Costco (NASDAQ:COST), Apple (NASDAQ:AAPL) and Netflix (NASDAQ:NFLX).

Let’s take a closer look:

Costco (COST)

Costco reported earnings Thursday night and despite mixed results, buyers bid the stock higher on Friday. For the fiscal fourth quarter, the operator of warehouse clubs earned $2.47 per share on revenue of $47.5 billion. While earnings beat expectations, revenue fell just short of analysts’ forecasts for $47.7 billion.

Despite the miss, traders swarmed to buy Friday’s weakness and pushed the stock back into the green by day’s end. The technical posture of COST stock looks fantastic. The past three days have seen buyers aggressively defend the rising 50-day moving average to keep the intermediate uptrend intact. This has created a nice low-risk, high-reward setup for spectators looking to get in on the game.

On the options trading front, calls were hot on the session. Activity swelled to 390% of the average daily volume, with 132,481 total contracts traded. Calls accounted for 55% of the day’s tally.

Option premiums were pricing in a 4.3% move after earnings, so with the stock barely inching higher by day’s end, this was a big win for volatility sellers. Options turned out being way overpriced for the event.

Apple (AAPL)

Apple shares jumped to a new closing 52-week high on Friday, eclipsing its old peak by a few pennies. The rally had sturdy backing as reflected by the higher-than-average volume, or accumulation day. Over 34.7 million shares changed hands on the session.

Throughout the recent market turmoil, AAPL stock has stood tall. I traded below its 20-day moving average for a nanosecond before buyers emerged to push it back to new heights. Its relative strength continues to make a strong case for AAPL being the best of breed in the tech sector.

Friday’s muscle flexing lit a fire under calls in the options pits. Total activity grew to almost twice the normal average daily volume, with 903,652 contracts traded. 59% of the trading came from call options alone.

Implied volatility dropped to 30% or the 36th percentile of its one-year range. Premiums are now pricing in daily moves of $4.32 or 1.9%.

Netflix (NFLX)

Netflix shares have been mercilessly beaten this quarter. Since peaking ahead of its July earnings release, NFLX stock has fallen as much as 34%. The oversold conditions have given way to a bounce attempt, which carried the stock to a two-week high on Friday.

Unfortunately, the technicals remain terrible, and the uncertainty of next week’s earnings release looms large. Deploying directional trades ahead of it is a crapshoot at best.

On the options trading front, traders came after calls alongside Friday’s stock rally. Activity pushed to 120% of the average daily volume, with 250,116 total contracts traded. Calls drove 58% of the session’s sum.

Implied volatility is running hot ahead of earnings at 56% or the 53rd percentile of its one-year range. Premiums are baking in daily moves of $9.64 or 3.5%.

As of this writing, Tyler Craig didn’t hold 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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