U.S. stock futures are extending Monday’s gains this morning.
Ahead of the bell, futures on the Dow Jones Industrial Average are up 0.35%, and S&P 500 futures are higher by 0.38%. Nasdaq-100 futures have added 0.56%.
With Monday being a day of recovery and calm after Friday’s plunge, options volume fell well below average levels. Calls led the way with about 15 million contracts traded versus only 13.3 million puts.
The action at the CBOE sent a similar message with the single-session equity put/call volume ratio dropping back to 0.58. As is so often the case, Friday’s high reading of 0.88 signaled capitulation and gave way to a relief rally. Monday’s drop pulled the 10-day moving average down to 0.72.
Options activity was actually pretty dull in individual stocks on Monday. Very few stocks exceeded their average daily volume. Freeport-McMoran (NYSE:FCX), AT&T (NYSE:T) and Advanced Micro Devices (NASDAQ:AMD) were among the more interesting ones.
Let’s take a closer look:
Freeport-McMoran made a rare appearance atop the options leaderboard. Its performance this year has been plagued by persistent weakness in mining and metal stocks. Back-to-back disappointing earnings reports haven’t helped either. Since peaking mid-April at $14.68, FCX stock has fallen 40%.
Deteriorating fundamentals and terrible technicals make FCX an impossible stock to buy here. The news was nonexistent Monday, and its price action was subdued. Volume was normal as well, so we don’t have a catalyst to pin the sudden emergence of options trading on.
Traders loved calls throughout the session. Total activity grew to 225% of the average daily volume, with 90,584 contracts traded; 91% of the trading came from call options alone.
The increased demand drove implied volatility higher on the day to 49%, placing it at the 43rd percentile of its one-year range. Premiums are pricing in daily moves of 27 cents or 3.1%.
AT&T shares have been a bastion of strength during the recent market turmoil. The outperformance was on full display Friday with only slight give back during the market rout. And Monday traders came after calls with a vengeance. More on that in a second. First, here’s the technical take.
T stock’s ascent accelerated in June and has now lifted the telecom titan to a year-to-date gain of 22%. The bullishness stands in stark contrast to the two-year descent that lopped as much as 39% off its share price. Shareholders are cheering the turnabout. The 20-day, 50-day and 200-day moving averages are all cruising higher to confirm buyers now control the trend across every time frame.
On the options trading front, calls were the hot commodity. Activity grew to 94% of the average daily volume, with 89,363 total contracts traded. Calls accounted for 81% of the take. The fact that AT&T made the top ten without eclipsing its average volume shows just how dead it was in the options market on Monday.
Implied volatility drifted at 21%, remaining at the 24th percentile of its one-year range. Premiums are baking in daily moves of 47 cents or 1.3%.
Advanced Micro Devices (AMD)
Advanced Micro Devices clinched the tenth spot atop the options leaderboard Monday with a scant 75% of its average daily volume. The activity wasn’t all that memorable, but it gives us an excuse to take a renewed look at what has long been viewed as a hot stock by momentum traders.
The upward trajectory of AMD stock’s trend has turned this month. With the uptick in volatility and minor victories by bears, the stock’s short-term trend is now pointing lower, and its intermediate-term trend is treading sideways. We’re using the 20-day and 50-day moving averages as indicators for both.
Buyers should watch the $32 resistance zone. A pop above that could set the stage for a return to the all-time high of $35.55. Until then, AMD is a tough trade.
On the options trading front, the theme of call dominance continued. Total activity only added to 75% of the average daily volume, with 286,924 contracts traded. Calls claimed 80% of the session’s sum.
Implied volatility sits at 52% or the 20th percentile of its one-year range. It’s not the juiciest opportunity for premium selling, but the truth is AMD’s absolute volatility runs hot enough that trades like naked puts and covered calls always boast attractive returns. The expected daily moves stand at 99 cents or 3.3%.
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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