U.S. stock futures are slipping slightly this morning paring yesterday’s substantial gains. Dovish comments from Federal Reserve Chairman Jerome Powell that interest rates were close to neutral sent traders into a buying binge Wednesday. Indexes were up 2% to 3% across the board amid massive accumulation.
Against this backdrop, futures on the Dow Jones Industrial Average are down 0.1% and S&P 500 futures are lower by 0.23%. Nasdaq-100 futures have shed 0.41%.
In the options pits, traders gobbled up calls yesterday as overall volume levels surged back from the holiday lull. Specifically, about 23 million calls and 17.8 million puts changed hands on the session.
The dash for calls made waves over at the CBOE, where the single-session equity put/call volume ratio slipped to 0.62 — a three-week low. The 10-day moving average continued falling back and ended the day at 0.74.
Three stocks saw red-hot demand for calls. Coca-Cola (NYSE:KO) call volume exploded ahead of today’s dividend payout. Microsoft (NASDAQ:MSFT) benefited from the mad dash back into tech stocks. Finally, Freeport-McMoran (NYSE:FCX) received a much-needed reprieve as economic slowdown fears eased.
Let’s take a closer look:
Coca-Cola has proved the ultimate safe haven play during the market’s ongoing temper tantrum. Its increasing popularity has landed it on the most-actives list a handful of times over the past few months.
With the beverage behemoth a stone’s throw from record highs and flashing strong uptrends across all time frames, the love affair is understandable. Even fundamentals are lending a hand here. October’s earnings release lit a fire under the stock.
The reason for yesterday’s appearance atop the options activity board is simple — dividends. The groundswell in call volume is due to traders looking to buy shares ahead of today’s 39 cent dividend payout.
On the options trading front, traders came after calls with a vengeance. Activity ramped to 280% of the average daily volume, with 101,266 total contracts traded. 91% of the trading came from call options alone.
Implied volatility slipped on the day to 16% placing it at the 27th percentile of its one-year range. Traders are pricing-in daily moves of 1%.
If Jerome Powell’s dovish commentary lit a fire in the market, then the earnings blowout from Salesforce (NYSE:CRM) poured gasoline on it. The rally in tech stocks was particularly impressive with Microsoft powering back above its 50-day moving average on strong volume.
The software sultan is now poised to attack its record high in the days ahead.
On the options trading front, calls ruled the day. Activity increased to 155% of the average daily volume, with 255,059 total contracts traded. Calls accounted for 61% of the day’s take.
With fear subsiding, implied volatility retreated to 27% placing it at the 40th percentile of its one-year range. Traders are now pricing in daily moves of 1.7%.
So far, 2018 has been a year to forget for basic material stocks. The seemingly endless trade war and economic slowdown fears have combined to lop 41% off of Freeport-McMoRan’s share value. With the descent, FCX has given back much of the ground gained during its 2016-2017 recovery.
Yesterday’s market rally breathed new life into the stock just as it was approaching a key support zone. It ended the day with a high-volume 6.5% gain. With a breakdown now avoided, we could be poised for a modest bounce.
On the options trading front, call trading dominated the session. Activity soared to 236% of the average daily volume, with 92,263 total contracts traded. A whopping 86% of the total came from calls.
Implied volatility ticked higher on the day to 54% placing it at the 75th percentile of its one-year range. Traders are pricing in daily moves of 3.4%.
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.
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