Wednesday’s Vital Data: TD Ameritrade, Halliburton and Facebook

U.S. stock futures are trading lower this morning, continuing Tuesday’s sharp selloff. Recession fears returned with a vengeance yesterday after the Institute for Supply Management’s U.S. manufacturing survey posted its worst reading in a decade. Indexes across the board cracked critical support zones, officially turning the market’s short-term trend lower.

Source: Shutterstock

Against this backdrop, futures on the Dow Jones Industrial Average are down 0.5%, and S&P 500 futures are lower by 0.5%. Nasdaq Composite futures have lost 0.6%.

The downdraft sparked a flurry of activity in the options pits with put demand rising to match calls. Overall volume surged back to average levels after Monday’s extremely low readings. Specifically, about 17.6 million calls and 17.5 million puts changed hands on the session.

Moving to the CBOE reveals a single-session equity put/call volume ratio, which popped back up to 0.73 and is nearing its one-month high. The 10-day moving average continued to cruise higher and now sits at 0.69.

Options activity was a buzzing in a handful of stocks including TD Ameritrade (NASDAQ:AMTD), Halliburton (NYSE:HAL) and Facebook (NASDAQ:FB).

Let’s take a closer look.

TD Ameritrade (AMTD)

Source: ThinkorSwim

Source: ThinkorSwim

Have you ever wondered what would happen if a company willingly sacrificed some $1 billion in annual revenue? Well, wonder no longer. If it’s a business the size of TD Ameritrade, it will probably see its stock price crash about 26%. But the pain may not be over yet. AMTD stock is down another 4% in pre-market trading. Here’s the skinny.

Last week Interactive Brokers (IEX:IBKR) announced it was slashing stock and exchange-traded fund commissions to zero. Then, Monday night, Charles Schwab (NYSE:SCHW) joined the party and dropped its commissions to zero, effectively forcing the hand of its competitors to follow suit or lose client assets to the now free alternative.

Last night after the bell, TD Ameritrade chose the former, dropping its rate for stock and ETF commissions from $6.95 to zero. According to its CFO, the move will cost the company about $220 million to $240 million in quarterly revenue. While this is undoubtedly a major win for retail traders, it is taking a massive bite out of what was for decades a lucrative income stream for brokers.

The options trading for AMTD went bananas. Total activity rocketed to 46 times the average daily volume, with 100,821 contracts traded. Calls accounted for 56% of the take.

Implied volatility understandably zoomed to the moon, landing at 54%, or the 100th percentile of its one-year range. Premiums are now the juiciest they’ve been all year long, giving sellers the upper hand.

Halliburton (HAL)

Source: ThinkorSwim

Source: ThinkorSwim

Last month’s oil spike in response to the attacks in Saudi Arabia is now all but a distant memory. Crude and energy stocks have given back all their gains and then some. Halliburton fell to a new one-month low and is fast approaching its 52-week low.

Bottom fishing in the energy sector continues to be a fool’s errand. And with recession scares returning to the forefront, I suspect the weakness in oil and the ecosphere of stocks around it will persist. The declining 200-day, 50-day and 20-day moving averages provide all the evidence needed that bears hold the upper hand for HAL stock.

Tuesday saw unusual activity in HAL options trading with calls dominating the day. Activity swelled to 407% of the average daily volume, with 112,366 total contracts traded. 84% of the trading came from call options alone.

Implied volatility popped to 50% or the 74th percentile of its one-year range. Premiums are pricing in daily moves of 58 cents or 3.1%.

Facebook (FB)

Source: ThinkorSwim

Source: ThinkorSwim

Facebook fell to a two-month low Tuesday and is now testing its rising 200-day moving average. A slip below this, which looks likely given the pre-market weakness, will place FB stock firmly in the bears’ camp. Since topping on earnings in July, FB has fallen 16%.

The next support zone lies at $160, so consider that your downside target if the selling pressure continues through October.

Tuesday’s 200-day moving average test sparked renewed interest in FB call options. Total activity grew to 104% of the average daily volume. By the time the closing bell rang, 196,663 contracts had changed hands with calls accounting for 66% of the tally.

With earnings looming later this month, implied volatility has been climbing higher for weeks. The metric is now at 34% or the 36th percentile of its one-year range. Premiums are baking in daily moves of $3.72 or 2.1%.

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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