Wednesday’s Vital Data: FedEx, Netflix and Amazon

Options activity provides a look at expectations on FDX, NFLX and AMZN stock

U.S. stock futures are flirting with remaining unchanged this morning. Unless something jostles the market, the low volatility holiday trading will continue.

Source: Shutterstock

Heading into the open, futures on the Dow Jones Industrial Average are up 0.07% and S&P 500 futures are higher by 0.06%. Nasdaq Composite futures have added 0.08%.

In the options pits, put volume fell off a cliff yesterday, helping to drive overall volume back below average levels. By day’s end, only 18.5 million calls traded versus 12.6 million puts.

The lull in put demand slammed the CBOE Volatility Index (VIX) single-session equity put/call volume ratio down to 0.53. At the same time, the 10-day moving average slumped to 0.58 and is fast approaching a new 52-week low. Complacency reigns.

Options traders swarmed FedEx (NYSE:FDX), Netflix (NASDAQ:NFLX) and Amazon (NASDAQ:AMZN), among other heavy hitters.

Let’s take a closer look.

FedEx (FDX)

Source: The thinkorswim® platform from TD Ameritrade

FedEx shareholders are getting a lump of coal for Christmas. The delivery giant reported disappointing earnings last night and is trading down 7.3% in pre-market trading. For the prior three-month period, FedEx earned $2.51 per share falling well below forecasts for $2.76 a share. Revenue also missed estimates. But that’s not all. The company also slashed fiscal 2020 profit forecasts.

FDX stock is set to open down 7.3% to $151, pushing it beneath all major moving averages. We have seen support form in this area in the past, but if it fails this morning, watch out below.

Last quarter’s report created a down gap that saw further weakness for about a month. I suspect we could see something similar this go around. The 52-week low at $137.78 is my next target.

Options trading was hot ahead of the number, with puts proving most popular. Activity rocketed to 532% of the average daily volume, with 127,307 total contracts traded. 55% of the trading came from call options alone.

The market was pricing in a $9.15 move, so this morning’s $11 whack falls just outside of expectations and should bring profits to volatility buyers ahead of the event. Look for a modest crush in implied volatility at the open.

If you think the poor earnings continue to weigh on the stock, then bear calls at the open are worth a shot.

The Trade: Sell Jan $155/$160 bear calls.

Netflix (NFLX)

Source: The thinkorswim® platform from TD Ameritrade

Last week’s minor breakdown in NFLX stock following an analyst downgrade was a ruse. The bear trap sprung today with Netflix shares jumping 3.7% after the streaming video king revealed details surrounding its massive subscriber base.

The unveiling showed strong growth overseas to help allay concerns about its U.S. performance due to the increasingly competitive marketplace.

Tuesday’s gain brings NFLX to the brink of an upside breakout. The $315 zone has been resistance ever since July, halting multiple rally attempts. A jump above it would send bullish signals across the board.

Buyers’ enthusiasm spilled into the options trading arena, with calls favored over puts by 2 to 1. Total activity grew to 190% of the average daily volume with 237,714 contracts making the rounds.

The increased demand drove implied volatility higher on the day to 30%, placing it at the 6th percentile of its one-year range. Premiums are cheap, making bull call spreads a smart play if you think the gains keep coming.

The Trade: Buy the Feb $320/$330 bull call spread for around $4.50

Amazon (AMZN)

Source: The thinkorswim® platform from TD Ameritrade

Amazon shares have been in the doghouse since July with multiple failed rally attempts. The persistent weakness has to be frustrating shareholders who are watching the Nasdaq capture record highs day after day. But all hope is not lost. Tuesday’s session saw an accumulation day emerge that could spell higher prices to come.

AMZN stock rallied 2.5% on 3.6 million shares and now has room to run to $1,820 and beyond. The “beyond” will only come into play if it finally smashing through the 200-day moving average. But if volume continues to build, I like its chances.

The rally certainly sparked interest on the options trading side of things. Calls accounted for 65% of the 208,053 that traded on the session. Total activity pushed to 118% of the average daily volume.

Implied volatility remains subdued at 18% or only the 3rd percentile of its 52-week range. Premiums are pricing in daily moves of $20.27 or 1.1%.

If you think a year-end run could be in the cards, buy bull call spreads.

The Trade: Buy the Feb $1,800/$1,810 bull call spread for around $4.

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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