Wednesday’s Vital Data: Sprint, Advanced Micro Devices and Facebook

Stock Market

U.S. stock futures are trading lower this morning in what should be viewed as garden variety profit-taking after a strong rally. Thus far, the giveback has been minimal.

Heading into the open, futures on the Dow Jones Industrial Average are down 0.19% and S&P 500 futures are lower by 0.20%. Nasdaq-100 futures have shed 0.34%.

In the options pits, the difference between calls and puts narrowed, showing more muddled action than what we’ve seen recently. Overall volume settled near average levels with approximately 16.1 million calls and 15.8 million puts changing hands.

Meanwhile, over at the CBOE, the single-session equity put/call volume ratio continued climbing and finished at 0.65. That lands it right on top of its 10-day moving average.

Options activity was a mixed bag on Wednesday (Options traders zeroed in on analyst actions yesterday). Sprint (NYSE:S) shares fell almost 6% amid concerns of its merger with T-Mobile US (NASDAQ:TMUS). Advanced Micro Devices (NASDAQ:AMD) finally succumbed to profit-taking after a rip-roaring rally. Finally, Facebook (NASDAQ:FB) notched its sixth consecutive up day, boosted by an analyst upgrade.

Let’s take a closer look:

Sprint (S)

Sprint shares fell to a new three-week low at $6.58 yesterday in a bearish session that had the telecom company on the ropes. The heavy volume, 5.87% whack unwound much of the gains from last month’s gap on optimism surrounding the company’s merger with T-Mobile.

The drop was enough to send S stock below its 20-day moving average, but numerous support levels loom closely. The biggest zone is $6.50, which marked a long-term resistance level that was tested countless times over the past year. Now that we’re testing it from the topside, there’s a good chance it could become support.

On the options trading front, traders stampeded into put options. Total activity shot to 174% of the average daily volume, with 84,083 total contracts traded; 78% of the trading came from call options alone.

Heightened uncertainty is keeping implied volatility pumped up. It ended the day at 133% or the 62nd percentile of its one-year range. Premiums are pricing in daily moves of 55 cents or 8.4%.

Advanced Micro Devices (AMD)

Advanced Micro Devices shares have been hot as a pistol lately, but even the best stocks can’t defy gravity forever. With the stock flashing extreme overbought readings and running headlong into last year’s peak, Tuesday’s 2.3% drop should come as no surprise. We’re seeing further downside follow-through premarket with AMD stock poised to open down just shy of 2%.

Weakness toward the $30 level has to be viewed as a buying opportunity. The momentum backing AMD’s price trend is simply too strong to bet against.

On the options trading front, calls outpaced puts for the day. Total activity barely eclipsed the average daily volume at 108%. For the session, 358,701 contracts traded with calls accounting for 60% of the take.

Implied volatility fell to 56% and now sits at the 29th percentile of its one-year range. Premiums are still high enough to support options selling strategies. Naked puts are my preferred choice here.

Facebook (FB)

Facebook notched its sixth consecutive up day, climbing 2.5%. It has officially reclaimed all that was lost by last week’s nasty plunge on fears of increased government scrutiny. The sharp rebound was aided by an upgrade by MoffettNathanson. Analyst Michael Nathanson lifted his rating to Buy from Neutral due to its attractive valuation.

Here’s the money statement in his research note:

“When comparing across a broader set of metrics among our Internet coverage group, Facebook stands out as being the cheapest despite having the strongest projected growth.”

With FB stock up six days in a row and old support at $180 looming large as potential resistance, buyers would be well served in exercising some patience here. A break above the 50-day moving average is needed before the short-term downtrend reverses higher.

On the options trading front, traders favored calls on the session. Total activity ticked up to 106% of the average daily volume, with 259,418 contracts traded. Calls claimed 66% of the session’s sum.

Implied volatility fell to 31%, placing it at the 36th percentile of its one-year range. The expected daily move is $3.45 or 1.9%.

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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