Stock Market

U.S. stock futures are trading higher this morning.

Ahead of the bell, futures on the Dow Jones Industrial Average are up 0.59%, and S&P 500 futures are higher by 0.57%. Nasdaq-100 futures have added 0.79%.

In the options pits, call and put activity ended the day on equal footing, while overall volume fell to average levels. Specifically, about 16.2 million calls and 16 million puts changed hands on the session.

The relative calm made an impact at the CBOE, where the single-session equity put/call volume ratio dropped to 0.65 — a three-week low. Meanwhile, the 10-day moving average inched higher to 0.72.

Options activity was hot in the following three stocks: Sprint (NYSE:S), Alibaba (NYSE:BABA) and Apple (NASDAQ:AAPL). Let’s take a closer look:

Sprint (S)

Traders swarmed telecom stocks after the Federal Communications Chairman, Ajit Pai, said he’s in favor of the $26.5 billion merger between Sprint and T-Mobile (NASDAQ:TMUS) that was announced in 2018. After a volatile intraday ride, S stock ended the day up 18.8%. TMUS gained 3.87%. Verizon (NYSE:VZ) and AT&T (NYSE:T) joined the rally, though their gains were pared significantly by the closing bell.

With the surge, Sprint now sits at an eighteen month high. Before the pop, the stock was stuck in a sloppy range. Time will tell if a bona fide trend emerges. Until then, I suggest patience for Monday’s gap to be digested and a better pattern to emerge.

On the options trading front, puts surprisingly ruled the roost. Activity rocketed to 622% of the average daily volume, with 185,578 total contracts traded; 75% of the trading came from put options alone.

With the resolution of the proposed merger now seemingly priced in, implied volatility dropped on the session to 93%. That places it at the 51st percentile of its one-year range. Premiums are pricing in daily moves of 43 cents or 6%.

Alibaba (BABA)

Trade war jitters already had Alibaba shares on the ropes, but a nasty earnings report from Chinese internet giant, Baidu (NASDAQ:BIDU) delivered the knockout blow. The losses in BABA stock since peaking last month have now grown to 18%, placing the company’s shares a stone’s throw from bear market territory.

Yesterday’s 5.3% drubbing was enough to push the stock back below its 200-day moving average for the first time since February. With it now pushing into oversold territory, a rebound may be in the cards, but it has high odds of failing. If anything a pop back toward $170 or $175 should be eyed as a potential shorting opportunity.

As far as options trading goes, calls won the day by a slim margin. Total activity grew to 191% of the average daily volume, with 383,956 contracts traded. Calls accounted for 54% of the tally.

The increased demand drove implied volatility higher on the day to 35% placing it at the 28th percentile of its one-year range. Premiums are now baking in daily moves of $3.56 or 2.2%.

Apple (AAPL)

Apple is another victim of the latest round of tariff-induced trauma. In a client note, Credit Suisse highlighted the threat that further deterioration in the trade war poses to Apple earnings for 2019. With Greater China contributing 20% to the company’s 2018 revenue and operating profit, the health of its economy is of utmost importance to Apple earnings.

The recent drop in AAPL stock has it trading below all major moving averages. Watch for a break back above $192.50 resistance to signal that the short-term downtrend is reversing and bears have officially been evicted from the premises.

On the options trading front, traders favored puts over calls. Activity held steady at 100% of the average daily volume, with 582,288 total contracts traded. Puts claimed 51% of the day’s take.

Implied volatility lifted to 33% or the 51st percentile of its one-year range. The expected daily move now stands at $3.76 or 2.1%.

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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