U.S. stock futures are inching higher this morning as traders gear up for Wednesday’s Federal Reserve meeting. The market is currently pricing in an 80% chance of the Federal Reserve holding their target interest rate steady at 2.25% to 2.50%. However, they will likely modify the language of their statement to clear the way for a quarter-point rate cut in July.
Against this backdrop, futures on the Dow Jones Industrial Average are up 0.01%, and S&P 500 futures are higher by 0.06%. Nasdaq-100 futures have added 0.26%.
In the options pits on Friday, call volume outpaced puts by a mile with about 19.2 million contracts traded versus just 13.7 million contracts for puts. Meanwhile, over at the CBOE, the single-session equity put/call volume ratio drifted at 0.63, or the dead center of its recent range. The 10-day moving average slipped to 0.64.
Here were three companies topping the most-active options list. Disney (NYSE:DIS) popped to a new record high on Friday but is trading lower this morning on the heels of an analyst downgrade citing valuation concerns. Beyond Meat (NASDAQ:BYND) jumped on reports of one of its competitors being unable to meet the public’s strong demand for its meat-free patties. Finally, Advanced Micro Devices (NASDAQ:AMD) offers one of the best setups on the Street for the new week.
Let’s take a closer look:
Disney stock’s performance this year has been magical. Last week’s rally propelled the mouse house to a new intraday record at $142.95. Since December its market capitalization has ballooned from $155 billion to $253 billion. And yet, some analysts believe the stock has become too hot.
This morning Imperial Capital downgraded Disney, slashing their rating from outperform to in-line while reaffirming their price target of $147. Here’s how David Miller rationalized the move in the firm’s research note:
“The core rationale for lowering our rating to in-line is simply due to the fact that the stock has performed consistent with our previous outperform rating — up by 25.7% since we established that rating on 11/21/18, and ahead of the S&P 500, which is up 7.8% in that same span of time.”
Disney shares are only trading down 0.53% premarket, so traders are taking the downgrade in stride. As long as the stock remains above $135, the short-term uptrend is intact.
On the options trading front, calls dominated on Friday. Activity climbed to 344% of the average daily volume, with 292,185 total contracts traded; 80% of the trading came from call options alone.
Implied volatility rallied to 23% placing it at the 31st percentile of its one-year range. The expected daily move for DIS stock is now $2.04 or 1.4%.
Beyond Meat (BYND)
The volatile ride of Beyond Meat continues. Shares of the red-hot provider of plant-based meat alternatives traded up as much as 11% before falling back to a 7% gain. Ever since the company’s first earnings report delivered an epic short squeeze, BYND stock has been riddled with volatility.
On the news front, Bloomberg reported that a major competitor of Beyond Meat has been unable to keep up with demand. Impossible Foods provides meat-free patties to restaurants like Red Robin, White Castle and Burger King. The story underscores the public’s ravenous appetite for plant-based alternatives and should bode well for BYND.
On the options trading front, calls won the day by a slim margin. Total activity galloped to 248% of the average daily volume, with 238,486 contracts traded. Calls claimed 56% of the day’s take.
Implied volatility has receded post-earnings but remains sky high at 114%. Option premiums continue to pay hefty sums to traders brave enough to step up and sell them. Selling far out-of-the-money bull put spreads remains my favorite way to play here if you’re bullish.
Advanced Micro Devices (AMD)
Advanced Micro Devices made the cut for today’s gallery for one primary reason. It boasts the best looking chart of all the stock’s on the most-active options list. It may even be the sweetest setup across all liquid stocks heading into the new week.
The big news last week that propelled the chip stock to a 13-year high was Microsoft’s (NASDAQ:MSFT) announcement that it would include AMD processors in its new Xbox console that is slated for release during the 2020 holiday season.
The initial euphoria gave way to some well-deserved profit-taking. AMD stock now sports a textbook bull retracement pattern that provides a low-risk entry to spectators looking to get in on the action. Many potential support zones loom close, including old resistance at $29.50 as well as the rising 20-day and 50-day moving averages.
On the options trading front, calls proved more popular than puts on Friday despite the stock’s decline. Activity ticked higher to 112% of the average daily volume, with 372,952 total contracts traded. Calls accounted for 59% of the session’s sum.
Implied volatility sits at 49% or the 19th percentile of its one-year range. Premiums are cheap on a relative basis, making option buys an attractive proposition.
As of this writing, Tyler Craig held bullish options positions in DIS and AMD. Check out his recently released Bear Market Survival Guide to learn how to defend your portfolio against market volatility.