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Tuesday’s Vital Data: Roku, Bank of America and Ford

Options activity provides a look at expectations on ROKU, BAC and F stock

U.S. stock futures are careening lower after President Donald Trump suggested a trade deal with China might not get done until after the 2020 election.

Source: Shutterstock

Heading into the open, futures on the Dow Jones Industrial Average are down 1.09% and S&P 500 futures are lower by 0.94%. Nasdaq Composite futures have lost 1.21%.

Yesterday’s stock slide created a stir in the options pits that will likely push into today. Call volume managed to outpace puts, but the gap between them narrowed. About 18.8 million calls and 15.2 million puts changed hands on the session.

The demand surge for puts was felt at the CBOE Volatility Index (VIX), where the single-session equity put/call volume ratio ramped to 0.66 — a one-month high. At the same time, the 10-day moving average climbed to a one-month high of its own at 0.60.

Options activity surged in Roku (NASDAQ:ROKU), Bank of America (NYSE:BAC) and Ford (NYSE:F), among others.

Let’s take a closer look.

Roku (ROKU)

Source: The thinkorswim® platform from TD Ameritrade

Source: The thinkorswim® platform from TD Ameritrade

Roku shares were rocked on Monday after Morgan Stanley downgraded the stock from “equal weight” to “underweight.” The stock was due for some selling following such a snappy rebound, but a 15% shellacking is more than bulls bargained for.

Morgan cited ROKU stock’s massive 400% year-to-date gain and subsequent high flying valuation as reasons to rein in the horns. The good news and eye-popping growth rates are priced-in. Perhaps.

ROKU has been the domain of volatility lovers and momentum traders all year long and Monday’s sucker punch illustrates just how challenging it is to ride the roller coaster.

Options trading saw put interest jump while calls held steady. Total activity pushed to 195% of the average daily volume, with 400,703 contracts traded. Demand was split almost 50-50 between calls and puts.

The increased demand drove implied volatility higher on the day to 71% placing it at the 44th percentile of its one-year range. Premiums are pricing in daily moves of $6.06 or 4.5%, so expect outsized moves to remain with us.

The Trade: With premiums reinflated, I like deploying bull put spreads into further weakness. Consider selling the January $105/$100 put spread.

Bank of America (BAC)

Source: The thinkorswim® platform from TD Ameritrade

Source: The thinkorswim® platform from TD Ameritrade

Bank of America rallied to fresh 52-week highs in intra-day trading but ultimately gave back the gains due to broader market selling pressure. Still, the strength was notable compared to the rest of the market, and options interest saw heavy call trading.

Chart watchers have been waiting for BAC stock to resolve its recent consolidation pattern. The cluster of candles near resistance suggests an upside breakout is imminent, but the bullish resolution might be delayed if today’s trade war news has anything to do with it. We’ll probably need to see the major indexes find a floor before BAC can get jiggy to the upside.

Options trading saw speculators favor calls throughout the day. Activity ramped to 174% of the average daily volume, with 299,064 total contracts traded. Call options drove 71% of the tally.

Implied volatility rallied to 25% or the 16th percentile of its one-year range. Premiums are only baking in daily moves of 52 cents or 1.6%. Given the gradual incline of its trend and the cheapness of options, long calls or call spreads are the way to go if you want to game further upside in the stock. I’d wait until BAC breaks above a prior day’s high though.

The Trade: Buy the March $31 call and sell the Jan $35 call for around $2.75.

Ford (F)

Source: The thinkorswim® platform from TD Ameritrade

Source: The thinkorswim® platform from TD Ameritrade

Ford shares have been stuck in the mud for the past three months, giving little reason for bullish excitement. But the recent stability is drumming up some optimism regardless. Resistance near $9.15 is the zone to watch. I’d wait for a breakout above it before jumping into bullish positions.

Options trading saw notable interest in calls. They accounted for 84% of the session’s sum. Total activity grew to 170% of the average daily volume, with 95,353 contracts traded.

Implied volatility rose to 28% placing it at the 13th percentile of its one-year range. Premiums are pricing in daily moves of 16 cents or 1.8%. Option prices are cheap, but it’s hard to get excited about buying calls until F stock can break out of its range.

The Trade: If F climbs above $9.15, then buy March $8 calls.

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

Article printed from InvestorPlace Media, https://investorplace.com/2019/12/tuesdays-vital-data-roku-bank-of-america-and-ford/.

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