Thursday’s Vital Data: Bristol-Myers Squibb, Shopify and Walmart

Options activity provides a look at expectations on BMY, SHOP and WMT stock

U.S. stock futures are pushing higher to extend yesterday’s gains.

Source: Shutterstock

In early morning trading, futures on the Dow Jones Industrial Average and S&P 500 are up 0.26%. Nasdaq Composite futures have added 0.35%.

Wednesday’s action in the options pits followed a bullish script with call volume leading the charge. Overall activity settled near average levels with about 19.7 million calls and 14.1 million puts changing hands on the session.

Meanwhile, over at the CBOE Volatility Index (VIX), the single-session equity put/call volume ratio saw a wicked downside reversal reflecting the return of optimism. The reading slammed down to 0.54 to close near the lower end of this year’s range. The outsized drop was enough to halt the 10-day moving average’s climb, pulling it back down to 0.60.

Options activity was buzzing in Bristol-Myers Squibb (NYSE:BMY), Shopify (NYSE:SHOP) and Walmart (NYSE:WMT).

Let’s take a closer look.

Bristol-Myers Squibb (BMY)

Source: The thinkorswim® platform from TD Ameritrade

Source: The thinkorswim® platform from TD Ameritrade

The healthcare sector has been heating up during the fourth quarter, and Bristol-Myers Squibb boasts one of the best charts in the space. Yesterday saw a rousing 2% rally push the drug giant to within a whisker of a new 52-week high.

Its price trend has a six-week range that is on the cusp of completion. If the $59 resistance zone gives way, then the next leg of its uptrend should begin.

Wednesday’s run lit a fire under options trading. Traders chased calls throughout the day, driving the total activity to 458% of the average daily volume. By day’s end, 167,333 contracts crossed the table with calls driving 59% of the take.

Implied volatility hovered at 26% or the 23rd percentile of its one-year range. Premiums are pricing in daily moves of 97 cents or 1.6%.

The Trade: Buy the Feb $60/$65 bull call spread for around $1.50.

Shopify (SHOP)

Source: The thinkorswim® platform from TD Ameritrade

Source: The thinkorswim® platform from TD Ameritrade

Bulls returned to Shopify in a big way after CNBC’s Jim Cramer suggested two companies were interested in acquiring the red-hot Canadian e-commerce star.

SHOP stock jumped 6.1% on the day amid heavy volume. 5.6 million shares changed hands, marking the most active trading session since April’s earnings report.

From a charting perspective, SHOP is back to firing on all cylinders. The previous three-month pullback allowed the stock to digest this year’s huge gains and set the stage for a more sustainable trend. With this week’s ramp, the bulls are back in control, and low-risk entries should be pursued.

On the options trading front, calls outpaced puts by a modest margin. Activity swelled to 313% of the average daily volume, with 129,000 total contracts traded. 59% of the trading came from call options alone.

With demand rising, implied volatility climbed to 49%, placing it at the 26th percentile of its one-year range. Premiums are now baking in daily moves of $11.47 or 3.1%.

Bull call spreads offer a low-cost avenue for banking on additional gains in SHOP.

The Trade: Buy the Feb $400/$410 bull call spread for around $3.20. I suggest waiting for a pullback in the stock, however. It’s extended after this week’s run.

Walmart (WMT)

Source: The thinkorswim® platform from TD Ameritrade

Source: The thinkorswim® platform from TD Ameritrade

Walmart shares have fallen asleep. But with the stock trading ex-dividend today, options traders were swarming regardless.

The lack of movement for WMT stock has been impressive. It’s literally gone nowhere for two months. But given the previous months of gains, perhaps a pause is justified. Currently, Walmart is up 27% year-to-date, which is fantastic for a sleepy consumer staples stock.

Bulls should wait for a break above $121 resistance to signal the next leg of the uptrend has begun. Otherwise, the dead money drift continues.

Options trading saw the typical pre-dividend payout activity. Calls accounted for 94% of the total volume, which saw 168,951 contracts change hands. Activity ramped to 254% of the average daily volume. The stock trades ex-dividend today, pricing out its quarterly payment of 53 cents. That translates into a yield of 1.8%.

Implied volatility fell to 17% or the 19th percentile of its one-year range. Derivative traders expect average daily moves of $1.30 or 1.1%, so set your expectations accordingly.

The neutral price action and low implied volatility make poor boy’s covered calls a smart play.

The Trade: Buy the March $115 call while selling the Jan $120 call for a net debit around $5.25.

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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