U.S. stock futures are trading lower this morning after the Dow Jones Industrial Average notched its eighth straight up week in a row. With the relentless recovery, some stock indexes are now within striking distance of their prior peaks.
Ahead of the bell, futures on the Dow Jones Industrial Average are down 0.23% and S&P 500 futures are lower by 0.29%. Nasdaq-100 futures have shed 0.29%.
Friday’s market rally lit a fire under call demand and helped drive overall volume to above-average levels. Specifically, about 23.3 million calls and 17.5 million puts changed hands on the session.
The euphoric dash for calls made waves at the CBOE with the single-session equity put/call volume ratio plunging to 0.52 — a one-month low. Meanwhile, the 10-day moving average slipped to a four-month low.
Options activity was all about earnings on Friday. Coca-Cola (NYSE: KO ) continued falling after missing revenue estimates and delivering poor 2019 guidance. Canopy Growth Corp (NASDAQ: CGC ) reported sales growth that largely satisfied shareholders. Finally, Nvidia (NASDAQ: NVDA ) jumped despite poor earnings, but the initial up-gap was aggressively sold.
Let’s take a closer look:
Weakness continued for the soda king on Friday, driving KO down just shy of 1% by day’s end. The stock gapped higher and saw early morning strength, but the rally ultimately fizzled on continued angst surrounding its poor earnings release. Earlier in the week, Coca-Cola reported numbers that missed revenue estimates. The forward guidance also disappointed.
With shares now beneath the 200-day moving average, sellers have full control here. The next two support zones are $44.50 and $41.50.
On the options trading front, calls dominated the session despite the slide. Total activity grew to 465% of the average daily volume, with 170,263 total contracts traded. Calls accounted for 78% of the day’s take.
With earnings out of the way, the day-to-day volatility should return to a more normal pace. Implied volatility sits at 17%, or the 34th percentile of its one-year range. Premiums are pricing in daily moves of 49 cents, or 1.1%.
Canopy Growth Corp (CGC)
The volatility in marijuana stocks continued on Friday, only this time it was an earnings-report-driving the drama. Canopy Growth Corp shares were up as much as 8.1% before the high finally wore off. By day’s end the gains were trimmed to 3.1%.
With the trend still pointing higher, CGC bulls remain in control. I see little reason to doubt their domination unless the stock takes out support at $41.
Not surprisingly, optimists took to the options market to express their enthusiasm. Activity jumped to 176% of the average daily volume, with 118,618 total contracts traded. 64% of the trading came from call options alone.
Expectations for movement were running hot into Friday’s session, so the 3.1% daily gain was kind of a dud. As such, traders crushed implied volatility driving it back down to 74%.
Nvidia reported earnings that reflected a massive slowdown in their business. Revenue and earnings for the fourth-quarter fell 24% and 48%, respectively. But there is a silver lining. While the results where terrible, the market was expecting horrific. So in a world where it’s all about expectations versus reality, the numbers were good enough to deliver a 1.8% gain on the day.
Looking at the close-to-close move is a bit misleading, however, because NVDA initially gapped up 5.4%, so this was undoubtedly a sell the news reaction. I suggest waiting for the stock to settle before trading it.
Calls won the popularity contest on Friday. Total activity swelled to 206% of the average daily volume, with 485,943 total contracts traded. 59% of the total came from the call side.
Implied volatility experienced the typical post-earnings crush, falling to 41% on the day. That places it at the 34th percentile of its one-year range. Premiums are pricing in daily moves of $4.11, 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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