U.S. stock futures are pointing toward a quiet open this morning. Ahead of the bell, futures on the Dow Jones Industrial Average are down 0.01% and S&P 500 futures are lower by 0.12%. Nasdaq Composite futures have lost 0.19%.
The bullish backdrop for equities continues to fuel call volume in the options pits. Some 25.1 million calls traded Thursday compared to only 17.9 million puts. The widening gap between calls and puts slammed the CBOE Volatility Index (VIX) single-session equity put/call volume ratio back down to 0.54. It’s a zone the metric has frequented a lot in recent weeks and reflects widespread trader optimism. Meanwhile, the 10-day moving average officially notched a new low for 2019 at 0.57.
Options traders honed in on a trio of earnings reports yesterday that included Disney (NYSE:DIS), Activision Blizzard (NASDAQ:ATVI) and Roku (NASDAQ:ROKU)
Let’s take a closer look.
The Mouse House is back, baby. DIS stock is soaring 5.7% in pre-market trading following a forecast-beating earnings report. On the top line, revenue came in at $19.1 billion versus expectations of $19.04 billion. That translated into $1.07 of earnings per share, which exceeded analyst estimates of 95 cents.
Disney shares entered the release in need of a boost. The past quarter has seen the stock decline as much as 13% off its highs. This, mind you, was while the S&P 500 was carving record highs day after day. Buyers aren’t wasting any time returning, though. The jump to $141 has DIS stock clearing multiple resistance zones and should set the stage for a return to July’s peak at $147.
Bull put spreads are my weapon of choice for gaming this morning’s gap. And speaking of options trading, let’s dive into the details of yesterday’s session. Calls were extremely active and accounted for 70% of the total. Overall volume pushed to 450% of the daily average, with 317,227 contracts traded.
Options premiums were baking in a 4% overnight, so this morning’s 6.4% jump is exceeding expectations. Volatility buyers should awake to a tidy profit this go around. Look for a massive drop in implied volatility at the open as the earnings uncertainty unwinds.
Activision Blizzard (ATVI)
Activision posted quarterly earnings last night as well but was unable to catch the magic like Disney. For the third quarter, the video game giant reported earnings per share of 38 cents on adjusted revenue of $1.3 billion. Both numbers topped analyst estimates, but the surprise was insufficient in pushing the stock higher.
This morning’s 2% drop will open ATVI stock below its 50-day moving average for the first time since August and test whether or not bulls are willing to defend the uptrend. Major support looms at $50 making it the obvious downside target if sellers press their advantage in the weeks to come.
The weekly chart for ATVI looks solid, so I suggest using any weakness as an opportunity to deploy bull trades like naked puts.
On the options trading front, calls outpaced puts by almost two to one. Total activity ramped to 339% of the average daily volume, with 239,003 contracts crossing the table.
The 2% overnight whack should be mild enough to deliver profits to traders swinging short volatility trades into the event.
The volatile tale of Roku continued Thursday with yet another earnings-induced monster gap. The single-session loss of 16% came after the streaming media company’s reveal of its third-quarter earnings.
On the positive side, Roku’s revenue climbed 50% compared to the year-ago quarter to $260.9 million. The number of active accounts grew 36%, and total streaming hours popped 68%. Unfortunately, the company still posted a loss of 22 cents per share. As far as ROKU stock goes, it remains a volatile and tricky name to play in. Thursday’s gap lowered it below its 50-day and 20-day moving averages and places it in no man’s land. The next significant support is $100, so consider that your downside target.
As far as options trading for the session, calls ruled the roost driving 61% of the activity. Overall trading pushed to 314% of the average daily volume, with 506,411 contracts traded.
Traders thumped implied volatility, but even with the crush, it remains at 63% or the 28th percentile of its one-year range. Premiums are baking in daily moves of $4.68 or 4%.
As of this writing, Tyler Craig held bullish positions in DIS. For a free trial to the best trading community on the planet and Tyler’s current home, click here!