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Monday’s Vital Data: United States Steel, Amazon and Twitter

U.S. stock futures are aiming for a green open to kick off December.

Source: Shutterstock

In early morning trading, futures on the Dow Jones Industrial Average are up 0.09% and S&P 500 futures are higher by 0.08%. Nasdaq Composite futures have shed 0.01%.

Friday’s holiday-shortened session saw extremely low activity in the options pits. Call volume won the day despite sellers dominating the session. Approximately 11.3 million calls and 8.2 million puts crossed the tables.

The CBOE Volatility Index (VIX) single-session equity put/call volume ratio continued its ping-pong action at the lower end of its range by rising to 0.59. The 10-day moving average climbed to 0.58.

Options activity was buzzing in three marquee names. United States Steel (NYSE:X) suffered a massive selloff after a water pipe broke in its Gary, Indiana steel mill. Amazon (NASDAQ:AMZN) paused after a robust four-day rally breathed new life into its sagging shares. Finally, Twitter (NYSE:TWTR) saw a sharp uptick in call activity even as its stock fell on the day.

Let’s take a closer look.

United States Steel (X)

Source: The thinkorswim® platform from TD Ameritrade

Source: The thinkorswim® platform from TD Ameritrade

United States Steel shares tanked 10% Friday before rallying back to close down 5.8%. Volume soared to 24.3 million shares, marking its most-active trading session since earnings. And that says something given that the market closed a few hours early.

The cause for the drama was a water pipe breaking in the company’s steel mill in Gary, Indiana. The flooding was severe enough to warrant turning off its blast furnaces and steel-making operations, which will hamper production until the issue is resolved.

Before Friday, X stock was gunning for a breakout that would have completed its recent bottoming pattern. Unfortunately, the stock drop has delayed the long-awaited resolution. If the market stays strong into year-end, X shares should eventually resume their upward march.

On the options trading front, calls outpaced puts by a healthy margin. Activity swelled to 181% of the average daily volume, with 116,805 total contracts traded. Calls accounted for 60% of the trading.

The increased demand drove implied volatility up to 60%, placing it at the 53rd percentile of its one-year range. Premiums are now ripe for the selling.

The Trade: If you think X stock will remain above $11 by Jan expiration, then sell the Jan $11 put for around 30 cents.

Amazon (AMZN)

Source: The thinkorswim® platform from TD Ameritrade

Source: The thinkorswim® platform from TD Ameritrade

After weeks of sluggish performance, Amazon finally gifted shareholders with some gains just in time for Thanksgiving. The three-day awakening erased weeks of losses and placed AMZN stock within prime striking distance of an upside breakout.

Friday’s slump allowed some much-needed digestion and will hopefully give way to the formation of a high base pattern. AMZN has been stuck in a nasty trading range for months now, so all chart watchers are hoping last week’s ramp will finally spark an uptrend.

A sustained break over the 200-day moving average near $1,815 will confirm the bullish trend has finally arrived.

On the options trading front, traders flooded into calls despite Friday’s stock slide. Total activity grew to 41% of the average daily volume, with 116,805 contracts changing hands. 65% of the trading came from call options alone.

Implied volatility has been trekking quietly higher to 21%, but it remains at only the 10th percentile of its one-year range. Premiums are baking in daily moves of $23.69 or 1.3%.

The Trade: Buying Jan out-of-the-money bull call spreads is my trade of choice here if you want to speculate on continued strength. You could wait for a break of the 200-day before pulling the trigger.

Twitter (TWTR)

Source: The thinkorswim® platform from TD Ameritrade

Source: The thinkorswim® platform from TD Ameritrade

Twitter’s five-day winning streak came to a close on Friday with the stock closing down almost 1%. The drop was well-deserved and shouldn’t worry shareholders at all given its mild nature.

Plus, the entire market suffered profit-taking, making it challenging for anything to end the shortened session in the green. The massive unfilled earnings gap continues to loom large overhead. TWTR stock will need to push above $32 to signal the next leg of its recovery has begun.

Until then, more sideways chop seems likely.

On the options trading front, traders came after calls with a vengeance. Activity only lifted to 60% of the average daily volume, with 65,423 total contracts traded. So, I’d caution against reading too much into the numbers. 83% of the session’s sum came from calls.

Implied volatility continues to limp along and ended the week at 32%. That lands it at the 8th percentile of its one-year range. Premiums are pricing in daily moves of 63 cents or 2%.

The Trade: I’m not in love with the current setup. So, no trade for now.

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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