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Wednesday’s Vital Data: United States Steel, Disney and Advanced Micro Devices

Tyler Craig

In early morning trading, futures on the Dow Jones Industrial Average are up 0.11%, and S&P 500 futures are higher by 0.16%. Nasdaq-100 futures have added 0.15%.

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In the options pits, put volume made a come back even helping to drive overall volume close to average levels. Specifically, about 15.3 million calls and 14.4 million puts changed hands on the session.

The dash for puts was felt at the CBOE as well with the single-session equity put/call volume ratio slipping to 0.58. The 10-day moving average held steady at 0.62.

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Options traders followed analyst actions yesterday. United States Steel (NYSE:X) swooned 10% in response to an analyst downgrade. Disney (NYSE:DIS) scored a breakout after an upgrade. Finally, Advanced Micro Devices (NASDAQ:AMD) fell 4.5% amid garden variety profit-taking.

Let’s take a closer look:

United States Steel (X)

The metal and mining sector ended Tuesday as one of the worst-performing industry. Blame for the beating lies in large part to United States Steel, which saw its share price plunge 10% after an analyst downgrade.

Curt Woodworth of Credit Suisse dropped his price target for the company to $13 from $21, while lowering his rating from neutral to underperform. Mr. Woodworth cited increased competition over the coming years as the primary headwind facing X stock.

The bearish behavior in United States Steel illustrates an important concept: news follows price. X shares have been broadcasting an ominous message for the past year by falling from $47.64 to $20. That was before yesterday’s beatdown. With falling 200-day, 50-day and 20-day moving averages, the path of least resistance was already lower. Tuesday’s downgrade simply sped up the stock’s demise.

On the options trading front, puts reigned supreme all day long. Activity ballooned to 452% of the average daily volume, with 166,691 total contracts traded; 63% of the trading came from puts.

The heightened anxiety drove implied volatility higher to 55%, placing it at the 51st percentile of its one-year range. Premiums are officially pumped but resist the urge to sell puts. The trend is simply too bearish for any contrarian nonsense.


Disney (DIS)

The mouse house got its magic back. So says yesterday’s analyst-inspired breakout which carried DIS shares to a fresh five-month high. In a research note, Cowen analyst Doug Creutz raised his price target from $102 to $131 while modifying the firm’s rating from market perform to outperform.

He cited a “powerful pipeline of product” set for release this year as the reason for his optimism. The breakout positions DIS stock for a retest of its record high at $120.20 in the coming weeks.

On the options trading front, bulls ruled the day with calls outpacing puts by a wide margin. Total activity grew to 175% of the average daily volume, with 178,180 total contracts traded. Calls accounted for 64% of the sum.

Implied volatility edged higher to 25% placing it at the 42nd percentile of its one-year range. Premiums are now baking in daily moves of $1.85 or 1.6%.

Advanced Micro Devices (AMD)

With profit-taking striking the Street, Advanced Micro Devices finally succumbed to gravity. The 4.5% descent marks its largest down day in two weeks and is providing what looks to be an attractive buying opportunity. I didn’t find any news of note, so let’s chalk the selling up to register-ringing to lock-in profits.

The price action for AMD stock has toed the bullish line ever since its January earnings release kicked off the uptrend. Moving averages of all-time frames are rising to confirm buyers’ dominance, and trend momentum is holding steady. Multiple support zones

On the options trading front, the selloff failed to launch put trading past calls. The activity ended slightly higher than usual at 105% of the average daily volume, with 341,636 total contracts traded. Calls accounted for 59% of the day’s tally.

Implied volatility continues to drift higher ahead of the April 24 earnings release. It now sits at 63% or the 42nd percentile of its one-year range. Options are pricing in daily moves of $1.09 or 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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