U.S. stock futures are crawling lower this morning amid mild profit-taking after yesterday’s surge to record territory.
Heading into the open, futures on the Dow Jones Industrial Average are down 0.10%, and S&P 500 futures are lower by 0.06%. Nasdaq-100 futures have lost 0.09%.
In the options pits, the opening pole vault in stocks set a bullish tone driving call volume well above puts. Specifically, about 19.3 million calls and 15.3 million puts changed hands on the session.
Call options weren’t as dominant at the CBOE, where the single-session equity put/call volume rallied back to 0.65 or the center of its 2019 range. That didn’t stop the 10-day moving average from slipping to another two-month low just under 0.59 though.
Options trading was on fire in three big names: Micron (NASDAQ: MU ), Twitter (NYSE: TWTR ) and Alibaba (NYSE: BABA ).
Let’s take a closer look:
The strides made in the U.S.-China relationship over the weekend at the G-20 summit lit a fire under stocks on Monday morning. But semiconductor stocks arguably received the biggest boost. Although the gains wilted by day’s end, Micron still notched a 4% gain, while seeing a massive influx in options trading.
Monday’s jump continued the rousing rally sparked by Micron’s latest earnings announcement. Since closing at $32.68 ahead of the release, MU stock has rallied 23% over four trading sessions to reclaim the high ground above its 200-day moving average. With its shares now steeply overbought, I’d caution against chasing. A pause or pullback would create lower-risk entries and set the stage for a run toward the next resistance level near $45.
On the options trading front, calls were the hot ticket. Total trading soared to 211% of the average daily volume, with 345,901 contracts changing hands. Calls claimed 55% of the day’s take.
Uncertainty has been crashing alongside the stock rally. At least that’s the message reflected by the implied volatility crush post-earnings. The reading fell to a fresh one-month low at 40%, landing it at the 10th percentile of its one-year range. MU options are now the cheapest they’ve been since early April.
The timing of Twitter’s rally couldn’t have been scripted better. It entered the weekend testing a critical support zone at $34. Breaching it would upend its April breakout and throw a wrench into its newfound weekly uptrend. Fortunately, the G-20 news gave buyers all the excuses needed to sally forth and defend their territory.
And with that, we now have a double bottom in the making and the potential for the daily downtrend to reverse higher. With support looming close, this marks an attractive risk-reward setup for bullish entries. The first upside target is $38.50.
On the options trading front, traders expressed their enthusiasm by bidding calls to the moon. Activity swelled to 200% of the average daily volume, with 121,981 total contracts traded; 78% of the tally came from call options alone.
The increased demand drove implied volatility up to 45%, placing it at the 28th percentile of its one-year range. Premiums are now pricing in daily moves of $1.02 or 2.8%.
Chinese stocks were bid up alongside their American brethren on Monday. Tech titan, Alibaba, led the charge with a 3.3% gain on heavy volume.
The rally marked a clear victory for BABA stock on the charting front by thrusting its share price back above the 50-day moving average. Roughly 50% of its spring correction has been recovered (reverse corrected?). Now that it sits on the northside of all major moving averages, BABA is well-positioned for a run back to its 2019 high of $195.72.
On the options trading front, traders came after calls with a vengeance. Activity grew to 185% of the average daily volume, with 346,486 total contracts traded. Calls accounted for 64% of the session’s sum.
With the uncertainty of the G-20 summit in the rearview mirror, implied volatility sunk like a stone, falling to 30% or the 14th percentile of its one-year range. Premiums are officially cheap and pricing in daily moves of $3.27 or 1.9%. If you’re speculating on additional upside, bull call spreads are appealing.
As of this writing, Tyler Craig didn’t hold a position in any of the aforementioned securities. Check out his recently releasedBear Market Survival Guideto learn how to defend your portfolio against market volatility.
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