U.S. stock futures are trading steeply lower this morning following earnings releases from Caterpillar and 3M. Tariff and trade-war concerns continue to dominate the landscape. The price action of late suggests investors are selling into any strength and good news for that matter.
Heading into the open, futures on the Dow Jones Industrial Average are down 1.62% and S&P 500 futures are lower by 1.41%. Nasdaq-100 futures have lost 1.75%.
In the options pits, put volume subsided despite the yesterday’s downturn. Chalk it up to the fact that the selling was orderly and relatively minimal. Specifically, about 16.9 million calls and 15 million puts changed hands on the session.
The relative calm had a large impact at the CBOE, where the single-session equity put/call volume ratio plunged to 0.57 — a three-week low. The 10-day moving average ticked lower to 0.68.
Options traders zeroed in on stocks with upcoming earnings. Ford (NYSE:F) saw heavy put trading ahead of Wednesday’s release. Caterpillar (NYSE:CAT) also saw puts active in anticipation of this morning’s report. Finally, Canopy Growth Corp (NYSE:CGC) shares were smashed as sentiment continues to sour against pot stocks.
Let’s take a closer look:
Ford (F)
With earnings slated for Wednesday afternoon, trading in Ford options is heating up. The automaker has had a terrible year and will limp into tomorrow’s report down 33% year-to-date. The concerns weighing on F stock are myriad. Rising interest rates, worries surrounding their restructuring plans, tariffs and trade-war trepidation are all amping up investor anxiety.
On the options trading front, puts were a hot commodity yesterday. Activity swelled to 240% of the average daily volume, with 136,930 total contracts traded. 60% of the trading came from put options.
Given the already-lofty levels of volatility heading into October, implied volatility is actually decreasing ahead of earnings. At 38%, it currently sits in the 67th percentile of its one-year range. These levels translate into expected daily moves of 2.38%.
Caterpillar (CAT)
CAT options surged ahead of this morning’s quarterly report. Traders who used puts to speculate on more pain after the release won’t be disappointed this morning, but shareholders surely will be. Despite besting estimates and reporting its best third quarter in history, the Street is selling shares of the construction equipment titan with a vengeance. Shares are currently down over 7% in premarket trading.
Revenues climbed to $13.5 billion while earnings arrived at $2.86 per share. The stock entered the quarterly report in desperate need of a positive catalyst with shares down almost 20% in the past three weeks. Unfortunately, traders are in a selling mood this morning, and it looks to be a bloody open for CAT.
On the options trading front, puts slightly outpaced calls in popularity. Activity swelled to 240% of the average daily volume, with 93,159 total contracts traded. Puts accounted for 54% of the day’s take.
Implied volatility entered earnings at a 38% implied volatility, but it will likely retreat this morning with the report now past.
Canopy Growth Corp (CGC)
CGC rounds out yesterday’s top three most actives. The high in marijuana stocks is starting to wear off. The downturn shouldn’t be too surprising given the Street’s souring sentiment. Growth stocks elsewhere are suffering beatdowns so why shouldn’t pot stocks? After all, they carry insanely rich valuations thus requiring management to execute perfectly in the months and years ahead to justify such lofty multiples.
CGC suffered a nasty failed breakout attempt last week and is now down 30% over the past five trading sessions on heavy volume. I suggest steering clear until the stock can remount its 50-day moving average and the dark clouds that hang over the broader market depart.
On the options trading front, calls ruled the day despite the beatdown. Activity lifted to 206% of the average daily volume, with 88,110 total contracts traded. 63% of the total came from calls.
Implied volatility is justifiably high as a kite at 98%. Traders should continue to expect daily moves north of 5%.
As of this writing, Tyler Craig didn’t hold positions in any of the aforementioned securities. Want insightful education on how to trade? Check out his trading blog, Tales of a Technician.
