Thursday’s Vital Data: International Business Machines, CVS and Square

Stock Market

U.S. stock futures are keeping their streak of bullish-leaning opens this morning. The big driver this morning is positive news on the trade war front. China said it agreed with the U.S. to incrementally remove existing trade tariffs as part of a phase one trade agreement.

Source: Shutterstock

Futures on the Dow Jones Industrial Average are up 0.52% and S&P 500 futures are higher by 0.35%. Nasdaq Composite futures have added 0.39%.

Calls once again adopted their leadership role driving the lion’s share of the trading volume. Total activity settled near average levels with approximately 22.7 million calls and 15.5 million puts changing hands. As long as the year-end seasonality has its way with markets, we will likely continue to see variations of a bullish theme on the options front.

We did see the gap between puts and calls narrow at the CBOE Volatility Index (VIX). The single-session equity put/call volume ratio rose to climbed to 0.63. At the same time, the 10-day moving average sunk beneath 0.59 for the first time since April.

Options activity was a mixed bag on Wednesday (Options traders zeroed in on analyst actions yesterday). International Business Machines (NYSE:IBM), CVS Health (NYSE:CVS) and Square (NYSE:SQ).

Let’s take a closer look.

International Business Machines (IBM)

Source: ThinkorSwim

Source: ThinkorSwim

With all the excitement and bullish flows elsewhere in the technology sector, it’s hard to spin an optimistic tale on IBM. Its price chart remains muddled this year after inconsistent earnings reports. The past four quarters have alternated between upside and downside gaps resulting in a messy range. Moving averages have been crisscrossing all year, suggesting a stalemate between bulls and bears.

And since IBM currently sits in the dead center of said range, it’s challenging to pick an eventual victor. If you’re seeking directional plays, I suggest shopping elsewhere.

The real reason for IBM stock’s massive options volume is its dividend payout. Cash flow seekers gobbled up call options for short-term control of the stock so they could capture the next $1.62 quarterly payment. It’s a juicy 4.7% dividend yield, so the zeal of traders to catch the cash is understandable. Today is the ex-dividend date, so shareholders of record as of yesterday’s close are in line for the disbursement.

Digging into the options trading of the day reveals an onslaught of calls. Activity ballooned to 554% of the average daily volume, with 177,390 total contracts traded. 96% of the trading came from call options alone.

Implied volatility is scraping the bottom of the barrel at 18% or the 7th percentile of its one-year range. Options are officially cheap.

CVS Health (CVS)

Source: ThinkorSwim

Source: ThinkorSwim

CVS Health shares have officially turned the corner. After a nasty start to the year took CVS stock to a six-year low, buyers finally emerged to rescue the ailing company from the mounting losses. Since then, the stock has gained an impressive 37%, spurred by two notable up gaps on better-than-expected earnings.

Yesterday’s pop came after the healthcare giant posted consensus-beating numbers for the third quarter. Revenue grew by over 36% compared to the year-ago quarter to $64.8 billion. That translated into adjusted earnings per share of $1.84.

On the options trading front, traders came after calls all day long. Total activity ramped to 409% of the average daily volume, with 146,711 contracts circling the table. Calls accounted for 71% of the day’s take.

The expected move post-earnings was $3.14 or 4.7%, which means Wednesday’s initial 3.1% jump fell within the expected range. CVS did rally 5.4% by the close, however, so the amount of movement didn’t result in a windfall for volatility buyers or sellers.

Square (SQ)

Source: ThinkorSwim

Source: ThinkorSwim

Last quarter’s earnings report delivered fireworks to volatility traders. The overnight gap was substantial and led to a seismic shift in Square stock’s price chart. This quarter though? Not so much. SQ stock is only pointing toward a 1.4% gap up after reporting better-than-expected earnings.

For the third quarter, Square raked in adjusted earnings of 25 cents per share on revenue of $602 million. Analysts forecast earnings of 20 cents on $596.4 million in sales, so both metrics topped estimates.

As far as the chart goes, resistance looms heavily overhead at $65. It would take a break over that before the daily trend looks bullish. This morning’s jump could send us in that direction, but more firepower is needed first. SQ has been dead money for the entire quarter, so here’s to hoping the earnings can spark a sustained run higher.

Ahead of the report, demand was split evenly between calls and puts. Total activity jumped to almost four times the average daily volume, with 194,896 contracts changing hands.

As of this writing, Tyler Craig didn’t hold positions in any of the aforementioned securities. For a free trial to the best trading community on the planet and Tyler’s current home, click here

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