Stock Market

U.S. stock futures are trading slightly higher this morning, though the overnight gains have been pared ahead of the bell.

Source: Shutterstock

Heading into the open, futures on the Dow Jones Industrial Average are up 0.50%, and S&P 500 futures are higher by 0.51%. Nasdaq-100 futures have added 0.69%.

In the options pits, yesterday’s neutral session took some of the wind out of the sails of options volume. Nonetheless, we still ended the day with above-average volume. Puts led the charge with about 22 million contracts traded versus only 20.2 million for calls.

It was the action at the CBOE that stole the show, however. Curiously, the single-session equity put/call volume ratio rocketed to its highest reading of the year, revealing mass fear on a day where the market didn’t fall that much intraday. At 0.98, the metric is closing in on its super-spike from last December’s market meltdown. Contrarians will point to the spike as a signal that a market bounce is nigh.

Options activity surged in Walmart (NYSE:WMT), Canopy Growth (NYSE:CGC) and Beyond Meat (NASDAQ:BYND)

Let’s take a closer look:

options trading

Walmart (WMT)

Walmart shares soared over 6% on Thursday after WMT reported strong earnings results. The retail behemoth posted earnings of $1.27 on revenue of $130.4 billion. Both measures bested analyst estimates and had shareholders cheering in the street. E-commerce sales drove a lot of the growth with online grocery shopping continuing to see mass adoption.

The rally in WMT stock reclaimed almost all that was lost during the past month’s correction. At $112.69, it now sits a mere 2.5% off its peak. Thursday’s surge turned the stock higher at a pivotal old resistance zone that has now become strong support; $105 is the new line in the sand to watch for bulls. Provided we stay above it, the trend is higher.

On the options trading front, traders came after calls throughout the session. Activity swelled to 363% of the average daily volume, with 137,803 total contracts traded. Calls accounted for 57% of the take.

The options market was pricing in an earnings gap of $5 or 4.7%, so the 6% jump exceeded expectations, bringing profits to long volatility positions. The post-earnings volatility crush was on full display with a drop to 23% or the 48th percentile of its one-year range.

Canopy Growth (CGC)

Traders fled Canopy Growth in droves Thursday after the Canadian-based cannabis producer revealed terrible first-quarter numbers. The departure resulted in a 14.4% loss on one of its highest volume trading sessions in months. This year’s gains have now all but unwound.

At one point, the high-flying pot stock was up almost 100%. Now it’s virtually unchanged for 2019. Revenue fell compared to the prior quarter to 90.5 Canadian dollars and came in over CA$20 million below estimates. The drop in sales resulted in an overall loss of $1.28 billion.

CGC stock was already on a bearish trajectory, but its descent accelerated in a big way. The next stop is $25.26, which hosts a significant support zone. Expect the weak earnings to weigh on the stock for the coming quarter. Rallies are suspect, and bear trades are the way to go.

On the options trading front, calls and puts proved almost equally popular. Total activity grew to 270% of the average daily volume, with 84,871 contracts traded. Calls slightly edged out puts with 52% of the sum.

The options board was pricing in a 9% move on earnings, so the initial gap was on target, but selling throughout the day pushed CGC well past expectations at -14%. Like WMT, volatility buyers came out winners for CGC.

Beyond Meat (BYND)

The inevitable and long-awaited reality check has arrived for Beyond Meat shares. Yesterday’s 11.5% thrashing marked the first time BYND stock has broken support since its mid-year IPO. Essentially, this is the first time buyers failed to defend their turf and it marks a decisive change in character.

Skeptics have long predicted the bloom would come off the rose given the insane valuation levels the company has been driven to during its nearly 700% moonshot. This week, these prophets finally get to have their day in the sun. With BYND now below the 50-day moving average, I suggest caution to any would-be buyers. The technical picture is now ugly and indicates the path of least resistance has shifted from higher to lower.

Traders favored puts alongside the stock beatdown. Activity climbed to 139% of the average daily volume, with 262,312 total contracts traded; 56% of the total came from puts.

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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