Stock Market

U.S. stock futures are circling unchanged this morning. The pause comes after yesterday’s rousing post-Fed announcement surge which lifted risk assets across the board. The central bank’s dovish tone was all the excuse traders needed to embark on a buying binge.

Ahead of the bell, futures on the Dow Jones Industrial Average are down 0.32% and S&P 500 futures are off by 0.07%. Nasdaq-100 futures have added 0.21%.

In the options pits, call volume spiked sharply yesterday, helping to drive overall volume well north of average levels. Specifically, about 22.9 million calls and 18.3 million puts changed hands on the session.

The CBOE saw a jump in call activity as well, with the single-session equity put/call volume ratio slipping to 0.63. Meanwhile, the 10-day moving average held firm at 0.63.

Options traders zeroed in on quarterly earnings yesterday. eBay (NASDAQ:EBAY) shares rallied after releasing a solid quarterly report including the decision to pay its first dividend in history. Boeing (NYSE:BA) was also flying high after a stellar quarter of its own. Finally, Advanced Micro Devices (NASDAQ:AMD) soared 20% on heavy volume as traders celebrated its upbeat forecast for 2019.

Let’s take a closer look:

eBay (EBAY)

eBay provided a bevy of data to chew on during Tuesday night’s earnings report. The company raked in 71 cents in earnings per share on revenue of $2.9 billion. Shareholders also received an unexpected gift when management announced the company would begin returning cash to owners through quarterly dividends.

Shareholders of record as of the close on March 1 will be eligible for a 14-cent-per-share dividend payment later in the month. A continued payout of this amount per quarter translates into 56 cents on an annual basis. With eBay closing at $34.08 yesterday that works out to a 1.64% dividend yield.

On the options trading front, call and put volume ended the day virtually even. Total activity swelled to 417% of the average daily volume, with 133,626 total contracts traded. Calls won the popularity contest by the slightest of margins — 50.6% versus 49.4% for puts.

Given the utter lack of an overnight gap post-earnings, implied volatility cratered yesterday from 36% to 26%. With it now sitting at the 30th percentile, options are pricing in daily moves of 57 cents, or 1.7%.

Boeing (BA)

High-flying Dow component Boeing rapidly increased its altitude after reporting robust earnings for the quarter. The aerospace juggernaut earned $5.48 per share on revenue of $28.34 billion. Both measures bested the Street’s estimates.

With Wednesday’s 6% rip, BA stock is now testing the upper end of its range. For a year, Boeing has been locked in a box between $300 and $400. But with a powerful and profitable quarter now fueling the ship, I suspect a break to new highs is inevitable. BA closed at $387.72 yesterday.

On the options trading front, calls outpaced puts by a wide margin. Total activity increased to 376% of the average daily volume, with 157,508 total contracts traded. 64% of the trading came from call options alone.

Ahead of its quarterly report, option premiums were relatively cheap. The expected move was only $13.13, or 3.6%. That makes yesterday’s 6% jump an outsized move that reflects just how excited traders were over the quarter.

With implied volatility now down to a lowly 27%, or the 24th percentile of its one-year range, premiums are pricing in daily moves of $6.55 or 1.7%.

Advanced Micro Devices (AMD)

Traders went bananas over Advanced Micro Devices after the chip company reported earnings. By day’s end, the buying binge sent AMD shares up over 20% to a new six-week high. The groundswell in participation added to 211 million shares trading hands on the session. It was the most active day for AMD stock since the height of its bull market last September.

On the options trading front, puts matched calls step-for-step throughout the day despite the eye-popping rally. Total activity jumped to 282% of the average daily volume, with 784,860 total contracts traded. Puts accounted for 50% of the day’s take.

The options board was pricing in a move of $2.25, or 11.7%, so the 20% squeeze was well above expectations. Implied volatility slid on the day to 60%, placing it at the 34th percentile of its one-year range. Premiums are baking in daily moves of 87 cents, or 3.8%.

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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