U.S. stock futures are trading higher this morning, buoyed by positive earnings reactions after hours in Apple (NASDAQ:AAPL) and Boeing (NYSE:BA). The gains come as traders jockey for positions ahead of this afternoon’s hotly anticipated Fed announcement.
Against this backdrop, futures on the Dow Jones Industrial Average are up 0.99% and S&P 500 futures are higher by 0.47%. Nasdaq-100 futures have added 1%.
In the options pits, call volume outpaced puts while overall volume fell well below average levels. Specifically, about 14.4 million calls and 12.8 million puts changed hands on the session.
The dwindling put volume was felt at the CBOE, where the single-session equity put/call volume ratio slipped to 0.68. Meanwhile, the 10-day moving average held its ground at 0.63.
Earnings continue to steal the limelight with individual stock options. Verizon (NYSE:VZ) shares were whacked after reporting disappointing Q4 revenue numbers. Square (NYSE:SQ) fell 10% on an analyst downgrade out of Raymond James. Finally, AAPL options were hot ahead of last night’s earnings release.
Let’s take a closer look:
Verizon shares fell 3.3% Tuesday after mildly disappointing earnings results. The company captured $1.12 in earnings per share on revenue of $34.28 billion. Analysts were expecting earnings of $1.09 on revenue of $34.44 billion. So chalk up the underwhelming top line number as the cause for yesterday’s downturn.
With VZ stock now below falling 50-day and 20-day moving averages, bears have officially wrested control of the price trend. The next support zone lies at $52.50, so we’ll soon see if buyers emerge before the budding downtrend turns particularly nasty.
On the options trading front, calls outpaced puts by a modest margin. Total activity swelled to 259% of the average daily volume, with 85,749 total contracts traded. 65% of the trading came originated in calls.
Implied volatility dropped to 22% on the session, placing it at the 37th percentile of its one-year range. Premiums are now pricing in daily moves of 74 cents, or 1.4%.
The budding recovery in Square stock was taken out at the knees yesterday by none other than Raymond James. John Davis, an analyst from the bank, downgraded the mobile payments company citing a slowdown in Square’s revenue growth. He also slapped a $56 price target on the stock which was trading at $76 before yesterday’s swoon.
From a charting perspective, the descent didn’t break any support levels, so Square’s new uptrend is still intact. Provided it stays above the 50-day moving average at $64 this pullback could be viewed as a buying opportunity ahead of its earnings release in late-February.
On the options trading front, calls ruled the roost despite the drubbing. Total activity climbed to 172% of the average daily volume, with 190,055 total contracts traded. Calls accounted for 62% of the day’s take.
The increased uncertainty lifted implied volatility to 64%, placing it at the 52nd percentile of its one-year range. Premiums are now pricing in daily moves of $2.78, or 4.1%.
Traders finally got to see if the early-January puke in Apple’s stock after it warned of weaker-than-expected revenue was warranted. It turns out there was a bit too much pessimism baked in after the Jan. 3 10% thrashing. The company said they earned $4.18 per share on revenue of $84.3 billion. They also downplayed revenue expectations for the next quarter.
Nonetheless, with the stock up 5.2% this morning it appears traders believe that with the stock already 1/3 lower from last October’s peak, the worst is behind us.
On the options trading front, calls were slightly more popular than puts. Total activity grew to 129% of the average daily volume, with 714,399 total contracts traded. Calls added 53% to the session’s tally.
With implied volatility perched at 36%, premiums were pricing in an earnings move of $7.66, or 5%. AAPL is trading up $7.98, or 5.2% in premarket trading so we can chalk the size of the jump as right in-line with market expectations.
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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