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Wednesday’s Vital Data: Macy’s, Home Depot and Bank of America

Tyler Craig

U.S. stock futures are inching lower this morning after a dull Tuesday trading session. Equities took a well-deserved breather near pivotal resistance (2,800) for the S&P 500.

Wednesday's Vital Data: Macy's, Home Depot and Bank of America

Heading into the open, futures on the Dow Jones Industrial Average are down 0.19% and S&P 500 futures are lower by 0.18%. Nasdaq-100 futures have lost 0.25%.

The snoozer of a session drove overall options volume into the ground. Specifically, about 14.8 million calls and 12.9 million puts changed hands on the day.

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The CBOE saw a slight snapback in its single-session equity put/call volume ratio to 0.6. Meanwhile, the 10-day moving average stayed pat at 0.59.

Options traders zeroed in on earnings reports in Macy’s (NYSE:M) and Home Depot (NYSE:HD). Elsewhere, Bank of America (NYSE:BAC) options were popular during a breakout attempt.

Let’s take a closer look:

Macy’s (M)

Macy’s reported fourth-quarter earnings Tuesday morning and beat the Street’s estimates. The retail giant, whose stock has struggled recently, earned $2.73 per share on revenue of $8.46 billion. Earnings were down 3.5% from the same quarter last year but still arrived higher than analysts’ estimates of $2.53 per share.

M stock initially rallied as much as 5.1% before profit taking trimmed the gains to 1.44%.

The price bump did nothing to change the long-term trajectory of Macy’s share price. It remains submerged beneath a falling 20-day, 50-day, and 200-day moving average. With the broader market hot as a pistol, M stock looks particularly grim on a relative basis. Watch for a break below the $24 support zone to signal the next down-leg has begun.

The earnings release lit a fire under options trading. Calls led the way as total activity ramped to 517% of the average daily volume, with 133,193 total contracts traded. Calls accounted for 57% of the sum.

Ahead of the event, the expected move based on options pricing was $2.14, or 8.8%. And that makes the measly 1.44% gain a real dud. Chalk this earnings season up to a big win for volatility sellers. Yesterday’s volatility crush drove the reading down to 37%, or the 28th percentile of its one-year range.


Home Depot (HD)

Home Depot saw a volatile session yesterday after reporting fourth-quarter earnings that left investors dissatisfied. The home improvement retailer raked in $2.09 per share on revenue of $26.5 billion. Guidance for 2019 earnings was underwhelming at $10.03.

Despite the initial plunge, HD stock fought back to end down just shy of 1%. Ahead of the event, HD shares had been improving from its fourth quarter beatdown. Since bottoming before Christmas at $158.09, they were up 20% heading into Tuesday’s report.

With the bullish response to the down gap, traders now have a precise level to trade against. If HD can remain above yesterday’s low or $182.80, then the path of least resistance remains higher.

The earnings excitement infected options trading yesterday, with puts outpacing calls by a slight margin. Activity swelled to 452% of the average daily volume, with 100,658 total contracts traded. 52% of the total originated with puts.

With the sharp rebound in prices after the morning plunge, volatility sellers came out big winners. The expected move was $6.13, or 3.2%, so the 0.9% drop was well within expectations. Moving forward, premiums are pricing in daily moves of $2.26, or 1.2%.

Bank of America (BAC)

Despite a light day on the news front, Bank of America landed in the most-active options list. Calls led the way accounting for 59% of the day’s take. Total activity ticked higher to 111% of the average daily volume, with 257,113 total contracts traded.

Since gapping higher on earnings last month, BAC stock has built a sideways base with easy-to-spot support and resistance zones. We’ve seen multiple tests of the $29.70 ceiling, and I suspect it’s only a matter of time until buyers break through. That’s the level to trade against if you’re looking to buy.

Implied volatility remains subdued at 23%, or the 21st percentile of its one-year range. Premiums are pricing in daily moves of 42 cents, or roughly 1.4%.

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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