U.S. stock futures are trading modestly higher this morning in a continuation of yesterday’s Fed-driven rally. Dovish comments from Chair of the Federal Reserve Jerome Powell sent stocks skyrocketing Tuesday. The CME Fedwatch tool is now pricing in a 90% chance of a rate cut by September.
Against this backdrop, futures on the Dow Jones Industrial Average are up 0.26%, and S&P 500 futures are higher by 0.26%. Nasdaq-100 futures have added 0.50%.
In the options pits, Tuesday’s optimism sent call volumes to the moon, outpacing puts by a mile. Specifically, about 23.4 million calls and 16 million puts changed hands on the session.
The euphoria was less apparent at the CBOE, where the single-session equity put/call volume ratio settled at 0.67, which is still a modestly high reading for 2019. Meanwhile, the 10-day moving average held its ground near 0.70.
The options activity leaderboard is littered with heavy call volumes. Home Depot (NYSE:HD) popped to a new one-month high ahead of its ex-dividend date. Snap (NYSE:SNAP) shares broke out to a new 2019 high amid a scorching 11% gain. Finally, Advanced Micro Devices (NASDAQ:AMD) was flooded with call activity during its 7% surge.
Let’s take a closer look:
Home Depot (HD)
Home Depot shares surged 3% to a new one-month closing high. The jump propelled HD stock back above its 20-day moving average and placed it on the cusp of completing a bottoming pattern. Its price action since last month’s earnings report has been constructive compared to the broader market weakness.
That said, the real reason for Home Depot landing atop the options leaderboard was the looming dividend. As is customary on the eve of an ex-dividend date, traders used calls for short-term control of the stock to qualify for the cash payment. The company is slated to pay its next quarterly dividend of $1.36 to shareholders of record. That translates into an annual yield of 2.81%, which is well above the yield on the S&P 500 (1.76%).
Options traders came after calls with a vengeance. Total activity zoomed to 705% of the average daily volume, with 216,973 contracts traded; 95% of the trading came from call options alone.
Implied volatility dipped on the day to 21% or the 27th percentile of its one-year range. Premiums are pricing in daily moves of $2.64 or 1.4%.
Snap shares took full advantage of yesterday’s market rally, scoring a high volume breakout to a new high water mark for 2019. The 10.8% gain eclipsed resistance from April and completed the recent basing formation. Compared to the rest of the market, SNAP stock is a real star. It has held firm during the market’s temper tantrum and boasts promising technical characteristics.
2019 is turning into a banner year for the once beaten-down stock. Its year-to-date gains have now grown to a mouth-watering 135%.
On the options trading front, calls led the way. Activity grew to 336% of the average daily volume, with 208,272 total contracts traded. Calls claimed 65% of the session’s sum.
Implied volatility sunk to 58% landing it at the 31st percentile of its one-year range. Premiums are now baking in daily moves of 47 cents or 3.6%.
Advanced Micro Devices (AMD)
Bulls jammed Advanced Micro Devices shares higher into the close, delivering a robust one-day, 7.2% gain. High volume accompanied the buying binge marking the third accumulation day over the past six sessions. One thing is clear: institutions want in.
The rally places AMD stock close to completing a gorgeous cup-and-handle formation. Given AMD’s history of richly rewarding breakout buyers, you can bet momentum traders are salivating over this setup as I type. Last year’s peak of $34.14 is beckoning.
As far as options trading goes, calls dominated the session racking up over twice the volume of puts. Activity swelled to 141% of the average daily volume, with 391,335 total contracts traded. Calls accounted for 69% of the tally.
Implied volatility inched lower to 55% or the 28th percentile of its one-year range. Premiums are pricing in daily moves of $1.02 or 3.4%.
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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