U.S. stock futures are retreating this morning to continue their recent pattern of choppy trading.
Ahead of the bell, futures on the Dow Jones Industrial Average are down 0.70%, and S&P 500 futures are down by 0.68%. Nasdaq-100 futures have shed 0.73%.
In the options pits, yesterday’s market rally took the fire out of demand helping drive overall volume back to average levels. Specifically, about 16.8 million calls and 15.6 million puts changed hands on the session.
With panic subsiding, the CBOE single-session equity put/call volume ratio fell back to 0.70. It’s still at the upper quartile of the 2019 range, but well off the extreme high readings that accompanied Monday’s market plunge. The 10-day moving average inched higher to 0.68.
Options activity was a mixed bag on Tuesday. Macy’s (NYSE:M) options were hot as a pistol ahead of this morning’s earnings release. Microsoft (NASDAQ:MSFT) saw heavy trading in call options ahead of today’s dividend payout. Finally, General Electric (NYSE:GE) scored a breakout attempt that sent the stock 4.5% higher.
Let’s take a closer look:
Macy’s options were hopping ahead of this morning’s earnings report. The ailing retailer was in desperate need of a win to boost its sagging share price, which was down 27% year-to-date.
Well, ask and ye shall receive.
For the first quarter, Macy’s earned 44 cents per share on revenue of $5.5 billion. Analysts were forecasting earnings of 33 cents on $5.5 billion. The earnings beat had the stock trading as much as 7% higher premarket, though those gains have since been cut to 4%.
Before getting giddy about the up-gap, it’s worth noting the overall trend remains extremely bearish for M stock. Until it can remount the 20-day and 50-day moving averages, I suggest viewing today’s rally with some skepticism.
On the options trading front, traders favored puts by a modest margin. Total activity rocketed to 442% of the average daily volume, with 100,726 contracts traded; 59% of the trading came from put options alone.
Options were pricing in a move of $1.77 or 8% on the news, so this morning’s 4% jump falls well within expectations and should bring profits to volatility sellers.
Microsoft remains one of the strongest technology stocks in the market. It has thus far escaped all of the trade war drama with uptrend and critical support levels intact. It did fall below its rising 20-day moving average this week, but barely. And compared to the Nasdaq it has been flashing some serious relative strength.
Once the broad market pressure finally eases, look for MSFT stock to be one of the first to see new highs.
On the options trading front, traders came after calls with a vengeance. Activity ramped to 183% of the average daily volume, with 355,295 total contracts traded. Calls accounted for 86% of the day’s take. The easy culprit for traders’ sudden appetite for calls is today’s dividend payout. With calls, they were able to have short-term control of the stock to snatch-up the dividend. Holders of record as of yesterday’s close will receive the 46 cent payment which translates into an annual yield of 1.48%.
With the lack of damage inflicted in MSFT lately, implied volatility has remained subdued. Yesterday it dropped to 24% lacing it at the 20th percentile of its one-year range. Premiums are pricing in daily moves of $1.87 or 1.5%.
General Electric (GE)
General Electric rounds out today’s trio of notables. The news was light Tuesday, so I’m chalking up the sudden jump in its options action as a technical-driven move incited by yesterday’s robust rally. From a price perspective, the company’s shares are a ship without a rudder. The 20-day and 50-day moving average continue to crisscross reflecting neutrality. Meanwhile, the descending 200-day moving average continues to keep a lid on rally attempts.
We shall soon see if the 200-day will remain resistance; however, with yesterday’s 4.6% jump, GE stock is once again attempting to break above it. If it succeeds, GE could signal it’s entering the next phase of its recovery; $12 would be the next upside target.
On the options trading front, calls and puts proved equally popular on the session. Activity crawled higher to 102% of the average daily volume, with 203,385 total contracts traded.
Implied volatility is drifting alongside the stock. At 43% it sits near the 33rd percentile of its one-year range. Not high, nor low. Premiums are baking in daily moves of 28 cents or 2.7%.
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.