U.S. stock futures are headed for a sleepy open as traders gear up for a rapid reaction to this afternoon’s Federal Reserve announcement. Ahead of the bell, futures on the Dow Jones Industrial Average are down 0.08% and S&P 500 futures are lower by 0.10%. Nasdaq-100 futures have shed 0.09%.
In the options pits, trading volumes came in well below average on Tuesday. Calls still led the way, as usual, with about 16.9 million calls and 13.7 million puts changing hands on the day. With today’s looming Fed announcement, traders seem to be taking a wait-and-see approach.
The gap between calls and puts increased enough to send the CBOE single-session equity put/call volume ratio sliding back toward this month’s lows at 0.56. Meanwhile, the 10-day moving average pushed to yet another two-month low at 0.59.
Options activity soared in stocks reporting earnings. FedEx (NYSE:FDX) shares are plunging this morning after whiffing on earnings. Adobe (NASDAQ:ADBE) joined them in the dog house with weak forward guidance. Finally, Snap Inc (NYSE:SNAP) saw call volumes zoom to the moon during a rousing stock rally.
Let’s take a closer look:
Optimism and powerful rotation into economically sensitive sectors buoyed FedEx shares ahead of last night’s earnings report. In the three weeks leading up to it, FDX stock pushed 17.2% higher, from $147.82 to $173.30. Unfortunately, the improving sentiment proved ill-placed. FDX is getting thrashed (-10.6%) this morning after a disappointing quarterly report.
For the fiscal first quarter, the company posted adjusted earnings per share of $3.05 on revenue of $17.05 billion. According to Refinitiv, the Street was estimated earnings of $3.15 on revenue of $17.06 billion. Adding insult to injury, FedEx also revised its full-year earnings guidance down to between $10 and $12 per share.
The company had a laundry list of headwinds contributing to the poor performance, including trade tensions, policy uncertainty, rising FedEx Ground costs and the recent loss of its delivery contract with Amazon (NASDAQ:AMZN).
On the options trading front, activity was split evenly between calls and puts ahead of the report. Trading surged to over five times the average daily volume, with 93,539 total contracts traded.
Options were pricing in a gap of $8.68 or 5%, so this morning’s 10% drop falls well outside of expectations. Count this one as a big winner for volatility buyers ahead of the event.
The trend of earnings disappointment continues this morning with Adobe. The software giant delivered earnings and revenue numbers that exceeded expectations for the quarter, but soft guidance sent shareholders for the hills.
For the fiscal third quarter, Adobe earned $2.05 on revenue of $2.83 billion. Wall Street was looking for $1.97 per share on $2.82 billion. Looking to the fourth quarter, the company expects $2.25 earnings-per-share on $2.97 billion in revenue.
Ahead of the bell, ADBE stock is trading 3% lower. As far as price action goes, the gap only returns us to yesterday’s lows, so it’s not exactly a trend killer. The primary problem is the stock is already trending lower beneath its 50-day and 20-day moving averages, so this morning’s weakness could kickstart a new downswing. Watch how the stock reacts to the 200-day moving average near $270. If we can stay above it, bulls have a chance. But if we break it, I have nothing nice to say.
On the options trading front, calls outpaced puts on Tuesday. Activity swelled to 478% of the average daily volume, with 107,852 total contracts traded. Calls accounted for 62% of the session’s sum.
Premiums were baking in an overnight gap of $12.49 or 4.4%, so this morning’s 3% decline is well within expectations.
Snap shares surged 6.8% amid heavy accumulation Tuesday. It was the largest gainer among all the liquid stocks in my watchlist Tuesday. The rally cleared short-term resistance setting the stage for a run toward its 52-week high at $18.36. Its price trend has been a beast all year long, and with SNAP now completing its recent consolidation pattern, the future looks bright.
On the options trading front, the stock pop sparked a mad dash for call options. Total activity climbed to 256% of the average daily volume, with 286,595 contracts traded; 81% of the trading came from call options alone.
With the increased demand, implied volatility jumped to 53%, placing it at the 14th percentile of its one-year range. Premiums are baking in daily moves of 56 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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