U.S. stock futures are bouncing back after yesterday’s slide.
Heading into the open, futures on the Dow Jones Industrial Average are up 0.87%, and S&P 500 futures are higher by 0.89%. Nasdaq-100 futures have added 1.00%.
In the options pits, call volume outpaced puts despite Tuesday’s selloff. Overall volume settled near average levels signaling a run-of-the-mill trading session. Specifically, about 15.3 million calls and 14.9 million puts changed hands.
Meanwhile, over at the CBOE, the distance between calls and puts narrowed driving the single-session equity put/call volume ratio back up to 0.73 – another one-week high. The 10-day moving average popped to 0.68.
Let’s take a closer look at the most actively traded options:
Typically investors view the announcement of a dividend increase with glee. But with iron-ore producer Cleveland-Cliffs (NYSE:CLF), it caused traders to flee. CLF stock plunged 14.6% amid substantial volume after the company issued a press release detailing plans for a 20% bump in their dividend to 6 cents per share. Additionally, they will pay out a one-time special dividend of 4 cents per share.
Falling steel and iron-ore prices amid trade war drama and global slowdown fears have plagued metal stocks like CLF, and it appears traders aren’t willing to bank on a recovery just yet. While the dividend bump might be a win in the long run, Tuesday’s price action shows traders are adopting a wait-and-see approach.
On the charting front, the next major support looms at $5.60 so consider that the downside target if bears continue their rampage.
As far as options trading goes, put volume exploded Tuesday driving 70% of the day’s action. Total activity rocketed to over seven times the average daily volume.
The increased demand drove implied volatility higher on the day to 68% placing it at the 71st percentile of its one-year range. Premium sellers will be happy to note this is the highest level since last December.
Home Depot (HD)
Last month’s earnings report lit a fire under Home Depot (NYSE:HD) shares, and they continue to burn bright. Tuesday’s drop was well-deserved and allowed HD stock to digest recent gains ahead of its next dividend payment. Its price action is extremely bullish with a rising 20-day, 50-day, and 200-day moving averages. Buying dips and breakouts remains the name of the game.
Home Depot’s ex-dividend date is today and was undoubtedly the cause of yesterday’s boom in options trading. Dividend seekers took to the options market for short-term control of HD shares to capture the $1.36 payout. The annual yield is 2.44%. Activity zoomed to 411% of the average daily volume, with 182,882 contracts traded. Calls accounted for 88% of the tally.
Implied volatility rose to 23%, pushing it to the 32nd percentile of its one-year range. Premiums are pricing in daily moves of $3.22 or 1.4%. Bull call spreads aren’t a bad way to go if you’re speculating on further gains.
Twitter (NYSE:TWTR) shares scored a long-awaited breakout Tuesday morning, but broad market weakness ultimately upended the rally. The intraday rejection pushed TWTR stock back toward the low of the day ending with a nasty upper shadow on its candlestick.
Fortunately, it still closed above its 20-day moving average, keeping the recent consolidation pattern intact. While the volatility challenges buyers’ resolve, the path of least resistance is still higher until support near $40 fails.
On the options trading front, the breakout attempt boosted call demand. Activity grew to 195% of the average daily volume, with 144,250 total contracts traded. 79% of the trading came from call options alone, showing strong enthusiasm backing the breakout bid.
Implied volatility continues to hover at the lower end of its trading range. The 40% reading places it at the 20th percentile of its one-year range. Premiums are baking in daily moves of $1.06 or 2.5%.
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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