Stock Market

U.S. stock futures are trading higher this morning as buyers look to extend the market rally for the third day in a row.

Futures on the Dow Jones Industrial Average are up 0.28% and S&P 500 futures are higher by 0.23%. Nasdaq-100 futures have added 0.32%.

Yesterday’s narrow trading range left little to talk about in the options pits. The upward drift in stocks continues to stunt put demand. Calls ruled the day while overall volume patterns hung around average levels. Specifically, about 17.2 million calls and 14.4 million puts changed hands on the session.

With the excitement of Monday’s mega-rally giving way to a relatively calm session, the CBOE single-session equity put/call volume ratio returned to the middle of its range at 0.66. The 10-day moving average shares the same spot at 0.66.

Boeing (NYSE:BA) nosedived 6% amid ongoing safety concerns surrounding its 747 MAX 8 aircraft. Home Depot (NYSE:HD) calls were hoppin’ ahead of Wednesday’s ex-dividend date. Finally, Advanced Micro Devices (NASDAQ:AMD) continued its comeback after a successful 50-day moving average test.

Let’s take a closer look:

Boeing (BA)

The impact of Sunday’s tragic plane crash continues to ripple across the globe. The number of airlines and countries grounding the 747 MAX 8 airplane has grown to include the UK, China, Australia, Indonesia, Singapore and others. Boeing shares once again found themselves fighting to stay a loft in a volatile session that ultimately ended with the stock falling 6.15% amid heavy volume. This morning BA is down another 1.2% in premarket trading.

All told, the aerospace titan has lost more than $40 billion of market value since this year’s high.

Given the massive range of Monday’s trading, yesterday registered an inside day. The fact that buyers emerged to prevent the stock from breaking Monday’s low is the most bullish takeaway from the volatile session. Should that $365 level hold firm, BA may escape this drama with its long-term uptrend intact. Break below it, however, and things will turn nasty.

On the options trading front, things were split 50-50 between calls and puts despite the day’s descent. Activity remained lofty at 549% of the average daily volume, with 474,436 total contracts traded.

The rocket-like rise in implied volatility continued for a second day, driving the reading to 44%. That places it at the 79th percent of its one-year range signaling premiums have expanded to their highest levels since mid-December. Short option trades like bull puts and iron condors are becoming an increasingly attractive way to play BA.

Home Depot (HD)

Home Depot’s trading on Tuesday was uneventful on the surface. Buyers won the contest, if only slightly, with a 0.7% gain on the session. However, the looming dividend payout lit a fire in call trading.

The price trend for HD stock has improved this year, especially compared to the beatdown suffered in the fourth quarter. Falling interest rates and the housing sector returning to health were two likely culprits, not to mention the improving backdrop of the broader stock market.

Though last month’s earnings release caused the stock to stumble, this week’s successful test of the 50-day moving average should embolden bulls. Home Depot is scheduled to trade ex-dividend on Wednesday which means those that don’t own the stock beforehand will not receive the quarterly payment of $1.36. Based on yesterday’s close, the dividend yield is around 3%.

As is usually the case ahead of a dividend, calls dominated the options scene. Activity ballooned to 293% of the average daily volume, with 87,209 total contracts traded. 88% of the trading came from call options alone.

Implied volatility remains subdued at 18% placing it at the 12th percentile of its one-year range. Premiums are pricing in daily moves of $2.06 or 1.1%.

Advanced Micro Devices (AMD)

This week’s market rebound is breathing new life into semiconductor stocks. And that has traders once again flocking to AMD shares.

Volatility has receded over the past six weeks, allowing the stock to build a sideways base or consolidation zone. Friday’s upside reversal marked a successful test of the zone’s lower end and reaffirms that buyers are in control.

On the options trading front, calls outpaced puts by a modest margin. Activity inched higher to 102% of the average daily volume, with 204,377 total contracts traded. Calls accounted for 62% of the day’s take.

As the excitement for AMD shares has died down, so too has the implied volatility. At 42%, the metric used by traders to identify if options are cheap or expensive is now sitting at the 7th percentile of its one-year range. Options are officially inexpensive. The daily expected moves are now 62 cents, or 2.6%.

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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