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Wed, July 15 at 7:00PM ET

Wednesday’s Vital Data: Home Depot, Salesforce and Apple

Options activity tells you what to expect in HD, CRM and AAPL stock

U.S. stock futures are bouncing back to snap their three-day losing streak.

Source: Shutterstock

Ahead of the bell, futures on the Dow Jones Industrial Average are up 0.47% and S&P 500 futures are higher by 0.42%. Nasdaq Composite futures have added 0.54%.

Yesterday’s panic-driven open over trade war angst fueled heavy put demand in the options pits. Overall volume pushed above recent average levels. By day’s end, approximately 20.1 million calls and 17.6 million puts crossed the table.

The put surge made waves at the CBOE Volatility Index (VIX), where the single-session equity put/call volume ratio ripped to 0.70 — a one-month high. Meanwhile, the 10-day moving average continued its upward march to end the session at 0.61. Here’s the takeaway. We’re seeing high fear readings suggesting to contrarians that a rebound is looming. Today’s higher open could be the start.

Options trading surged in Home Depot (NYSE:HD), Salesforce (NYSE:CRM) and Apple (NASDAQ:AAPL), among others.

Let’s take a closer look.

Home Depot (HD)

Source: The thinkorswim® platform from TD Ameritrade

Source: The thinkorswim® platform from TD Ameritrade

The fallout over Home Depot’s disappointing earnings release continued Tuesday with another big down day. HD stock has now entered correction territory by dropping 11% from November’s peak. But don’t count the home construction retailer out just yet.

The 200-day moving average is quickly rising to meet the falling stock and could potentially act as a catalyst for buyers to finally strike. Furthermore, the weekly trend of HD still looks stellar. The past two weeks of selling appear to be of the garden variety. We’ve seen many such retreats over the past few years, and each has proven a buying opportunity.

Options trading was hot ahead of the looming dividend payout. Investors targeted call options for short-term control of the stock to capture the next quarterly payment of $1.36. That translates into an annual yield of 2.6%.  Total activity rocketed to 432% of the average daily volume, with 236,185 contracts traded. 88% of the trading came from call options alone.

The oversold conditions, coupled with a modest implied volatility rank of 30%, make bull put spreads an interesting way to fish for a bottom here.

The Trade: Sell the Jan $200/$195 bull put spread for around 60 cents.

Salesforce (CRM)

Source: The thinkorswim® platform from TD Ameritrade

Source: The thinkorswim® platform from TD Ameritrade

Salesforce opened lower yesterday alongside the rest of the market, but bulls swarmed to fill the gap. The buying binge showed investors’ optimism heading into last night’s earnings report.

For the fiscal third quarter, CRM raked in earnings of 75 cents per share on revenue of $4.5 billion. Analyst estimates were looking for 66 cents in earnings per share on sales of $4.45 billion, so chalk this up as a solid beat. Unfortunately, the stock’s reaction has been muted with a testy little tug-of-war game going on after hours. With just a little to go before the opening bell, CRM stock is trading down just shy of 0.4%.

As long as the shares maintain yesterday’s gains, I like the bulls’ chances moving forward.

On the options trading front, traders favored calls throughout the day. Activity grew to 344% of the average daily volume, with 112,880 total contracts traded. Calls accounted for 59% of the session’s sum.

Implied volatility was drifting at the lower end of its range ahead of earnings, so the market wasn’t expecting fireworks in response to the report. Still, the sub-1% move should translate into modest profits for volatility sellers. Premiums were baking in an almost 4% move.

Apple (AAPL)

Source: The thinkorswim® platform from TD Ameritrade

Source: The thinkorswim® platform from TD Ameritrade

Yesterday’s market swoon pushed AAPL stock below its 20-day moving average for the first time since August. It’s previously probed the south side of this oft-watched smoothing mechanism but never closed below it until now. And while the selloff is substantial compared to previous drops, I wouldn’t abandon the bull camp just yet.

If anything, the uptick in implied volatility to the 25th percentile is creating an opportunity to sell pumped put options. More on that in a minute.

As far as options trading goes, demand was split 50-50 between calls and puts. Total activity ticked higher to 123% of the average daily volume, with 650,591 contracts traded.

The longer-term trend of Apple shares is too gorgeous to ignore and too powerful to bet against. Plus, bullish seasonality winds are still blowing.

The Trade: If you think AAPL can remain above $240 through Christmas, then sell the Jan $240/$235 bull put spread for around 60 cents.

As of this writing, Tyler Craig held bullish positions in HD. For a free trial to the best trading community on the planet and Tyler’s current home, click here

Article printed from InvestorPlace Media,

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