U.S. stock futures are trading sharply lower this morning following weak earnings reports from Amazon (NASDAQ:AMZN) and Google (NASDAQ:GOOG, NASDAQ:GOOGL).
The overnight slide is reversing all of Thursday’s hard-fought gains, frustrating bottom fishers in the process. Rallies continue to be suspect in this environment.
Against this backdrop, futures on the Dow Jones Industrial Average are down 0.74% and S&P 500 futures are lower by 0.91%. Nasdaq-100 futures are leading the slide down 1.79%.
In the options pits, put volume kept pace with calls for the second day in a row. Specifically, about 22 million calls and 22.6 million puts changed hands on the session.
With the market rally, put demand at the CBOE subsided driving the single-session equity put/call volume ratio down slightly to 0.66. The 10-day moving average held its ground at in 0.67.
Options traders zeroed in on technology stocks yesterday. Twitter (NYSE:TWTR) and Microsoft (NASDAQ:MSFT) both soared after reporting better-than-expected earnings. And Intel (NASDAQ:INTC) options were heavy ahead of last night’s earnings release.
Let’s take a closer look:
Twitter (TWTR)
Yesterday was all about earnings for Twitter. Its early gains were pared by days end, but the blue bird still finished up 15.5% on heavy volume. In an earnings season where disappointments and down gaps are everywhere, Twitter’s launch was a rare treat for investors.
Q3 revenue climbed 29% to $758 million while earnings per share totaled $1.02. Both measures beat analysts expectations.
The price chart for TWTR remains muddled even after Thursday’s launch. I suggest patience to see if a bona fide uptrend can develop in the weeks to come.
On the options trading front, calls ruled the day. Activity swelled to 329% of the average daily volume, with 303,909 total contracts traded. 60% of the trading came from call options alone.
The post-earnings volatility crush was in full force driving implied volatility down considerably to 58% and the 47th percentile. At its current perch, volatility is pricing in daily moves of 3.7%.
Microsoft (MSFT)
Microsoft’s earnings beat and ensuing price jump delivered a much-needed boost to the tech sector yesterday. Nevermind that it’s being completely unwound this morning with earnings misses by Google and Amazon. The sultan of software reported revenue of $29.08 billion, a 19% increase over last year’s numbers. Meanwhile, earnings per share came in at $1.14, up 36%.
MSFT finished the day up 5.8% completely erasing the steep losses suffered during Wednesday’s tech rout. It remains one of the strongest tech stocks on the board. Despite this month’s dramatic downturn in the broader market, MSFT is only 6.8% off its highs
On the options trading front, call volume dominated. Activity remained elevated at 252% of the average daily volume, with 440,057 total contracts traded. Calls accounted for 62% of the day’s take.
Microsoft’s implied volatility is mirroring that of Twitter with a post-event slide. The reading now stands at 31% or the 49th percentile and is pricing in daily moves of considerably to 58% and the 47th percentile. At its current perch, volatility is pricing in daily moves of 1.9%.
Intel (INTC)
Intel shares surged ahead of last night’s earnings report. The chip giant climbed 4.6% on strong volume. After the bell, INTC initially spiked higher on its Q3 results, but the gains have since been pared, and INTC is set to open only slightly higher.
For the quarter, Intel reported adjusted earnings of $1.40 per share on revenue of $19.16 billion. Wall Street expected $1.15 and $18.13 billion, respectively.
The price action in the semiconductor sector has been atrocious during the ongoing October correction. And I don’t anticipate Intel’s earnings report will change anything. Until the trend gets righted, any price rallies in Intel are born to be sold.
On the options trading front, call volume dominated. Activity ballooned to 248% of the average daily volume, with 294,721 total contracts traded. Calls contributed 62% of the total.
Implied volatility was hot ahead of last night’s event, but given the non-reaction after-hours and tame open set for the morning, I fully expect a large drop. Into the number implied vol rested at 43% or its 89th percentile.
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.
