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Monday’s Vital Data: Microsoft, Square and AT&T

Tyler Craig

U.S. stock futures are trading higher this morning. The U.S. and Mexico came to an agreement over the weekend to avoid the tariffs that President Trump recently threatened to levy.

Heading into the open, futures on the Dow Jones Industrial Average are up 0.50% and S&P 500 futures are higher by 0.47%. Nasdaq-100 futures have added 0.62%.

In the options pits, overall volume swelled to above average levels on Friday with calls leading the charge. Specifically, about 21.8 million calls and 19 million puts changed hands on the session.

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The euphoria made an even bigger impact at the CBOE, where the single-session equity put/call volume ratio plunged to 0.51. This matches the lowest reading of the year, suggesting bulls packed some serious firepower ahead of the weekend.

Options traders zeroed in tech stocks driving many of the sector leaders sharply higher. Microsoft (NASDAQ:MSFT) blasted through resistance to close at a new record high. Square (NYSE:SQ) scored its first breakout since March. Finally, AT&T (NYSE:T) jumped amid renewed demand for dividend-paying stocks.

Let’s take a closer look:

options trading Monday's Vital Data: Microsoft, Square and AT&T

Microsoft (MSFT)

While fellow tech titan’s Amazon (NASDAQ:AMZN) and Apple (NASDAQ:AAPL) have been wallowing in the mud, Microsoft has quietly stretched to record heights. With Friday’s 2.80% surge, the software giant now boasts a $1 trillion market cap, making it the most valuable company on the planet.

Just last Monday, MSFT stock suffered a nasty support break on heavy volume. The single-day slam also took it below its 50-day moving average for the first time since February. But the drop was a trap designed to lure in greedy bears. Throughout the rest of the week, MSFT ripped higher ending with Friday’s breakout. But the bullish festivities are continuing with the stock up another 1.15% in premarket trading.

You can bet against the uptrend at your own peril here.

On the options trading front, traders came after calls with a vengeance. Activity swelled to 202% of the average daily volume, with 325,654 total contracts traded. Calls contributed 62% to the day’s take.

With uncertainty easing, implied volatility sunk to 25%, landing it at the 22nd percentile of its one-year range. Premiums are officially cheap again and the expected daily move is $2.03 or 1.5%.

Square (SQ)

Ever since March’s failed breakout attempt, Square shares have been under pressure. All told, the payments processor fell as much as 28% before last week’s snap-back finally halted the decline. Friday’s breakout marked the first resistance breach we’ve seen since the slide kicked off three months ago.

Spectators waiting for signs of strength before bottoming fishing now have an excuse to cast their lines.

Slowing momentum accompanied the previous swing low, suggesting the downtrend was losing steam ahead of last week’s reversal. A break above the 50-day moving average is needed before bulls declare victory, but Friday’s pop was a clear signal that the trend is changing.

On the options trading front, calls outpaced puts by a modest margin. Total activity jumped to 147% of the average daily volume, with 100,242 contracts traded. Calls claimed 65% of the session’s sum.

Implied volatility held steady on the day at 41% or the 14th percentile of its one-year range. The low premiums suggest option buys are the way to go. The expected daily move is $1.79 or 2.6%.


AT&T (T)

AT&T shares notched their fifth consecutive up day ahead of the weekend, climbing 1.2%. The rally returned T stock to a short-term resistance zone at $32.50. Bulls will argue order has been restored with the stock now positioned above all major moving averages.

One of the dominant themes of the year is plunging bond yields. With interest rates in bond land returning to lowly levels, dividend-paying stocks are becoming increasingly attractive. Compare to the ten-year yield of 2.1%, the 6.28% dividend yield in AT&T looks like a home run. No doubt, some of the renewed interest in the stock is due to yield hunters fleeing fixed income in search of better game.

On the options trading front, calls found favor in the eyes of market participants. Total activity grew to 142% of the average daily volume, with 140,678 contracts trade; 58% of the tally fell on the call side of the aisle.

Implied volatility dipped to 21% or the 25th percentile of its one-year range. Premiums are pricing in daily moves of 43 cents or 1.3%.

As of this writing, Tyler Craig didn’t hold a position in any of the aforementioned securities. Check out his recently released Bear Market Survival Guide to learn how to defend your portfolio against market volatility.

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