U.S. stock futures are trading higher in early morning trading. Futures on the Dow Jones Industrial Average are up 0.16%, and S&P 500 futures are higher by 0.18%. Nasdaq-100 futures have added 0.16%.
In the options pits, the distance between call and put volume narrowed while overall trading levels hovered near average readings. By day’s end, 16.7 million calls and 14.7 million puts changed hands.
The action at the CBOE was similar, with the single-session equity put/call volume ratio inching higher to 0.66. Meanwhile, the 10-day moving average finally arrested its slide and rallied to 0.60.
Options activity was a mixed bag on Wednesday (options traders zeroed in on analyst actions yesterday). Disney (NYSE:DIS) saw heavy call trading on an attempted breakout to all-time highs. Roku (NASDAQ:ROKU) shrugged off a downgrade by RBC Capital Markets and rallied off of a key support zone. Finally, Cisco (NASDAQ:CSCO) call volume soared ahead of Wednesday’s ex-dividend date.
Let’s take a closer look:
Disney shares notched a new record high close of $142.53 and are on the verge of blasting through critical resistance. Although the volume was tepid, that didn’t stop traders from taking to the derivatives market to speculate on further upside. Calls dominated the session accounting for 81% of the total. Activity climbed to 117% of the average daily volume with 129,366 total contracts traded.
The price action over the past two months has created a classic cup-and-handle pattern that is a whisker away from completion. Chart watchers everywhere have DIS stock on their radars heading into today’s session. The rising 20-day, 50-day and 200-day moving averages confirm buyers hold control of the trend across all time frames.
Implied volatility slipped on the day to 23% or the 31st percentile of its one-year range. August bull call spreads offer a low risk, high reward way to capitalize on additional strength from DIS.
The bottom fell out from under Roku shares in early morning trading after RBC analyst Mark Mahaney lowered the company’s rating from outperform to sector perform citing valuation concerns. With ROKU stock’s meteoric 300% rise this year, a downshift in expectations is more than justified.
And yet, from a charting perspective, the timing of the rating drop was ill-timed. ROKU was already 15.6% off its highs and down seven of the last eight trading sessions. And with the rising 50-day moving average fast approaching, it was time for a rebound.
Buyers didn’t disappoint, gobbling up the early morning weakness and pushing ROKU up 1.8% on the session.
On the options trading front, the downgrade did light a fire under put demand. Total activity climbed to 115% of the average daily volume, with 87,760 contracts traded. Puts claimed 55% of the session’s sum.
The increased buying pushed implied volatility up to 40% or the 69th percentile of its one-year range. Premiums are now baking in daily moves of $4.05 or 4.4%. Bull puts are my strategy of choice here.
Cisco shares entered a holding pattern in April and haven’t departed since. The respite is well deserved given its 33% gain over the first four months of the year. The range has been sloppy, but yesterday’s rally held a short-term support level suggesting buyers maintain the upper hand.
The real reason for CSCO stock pushing so far into the options leaderboard is its July 3 dividend date. Cash flow seekers snatched up calls for short-term control of the stock to score the quarterly 35 cent payout. The dividend yield of 2.51% outpaces the S&P 500’s 1.93% dividend yield, showing us that CSCO is a market-beating income generator at current prices.
Options trading saw call volumes account for 84% of the 146,016 contracts that changed hands on the day.
Implied volatility dipped on the day to 23%, pushing it to the 32nd percentile of its one-year range. Premiums are pricing in daily moves of 82 cents or 1.5%. As long as CSCO stock holds $54, bull trades are the way to go.
As of this writing, Tyler Craig held bullish options trades in ROKU and DIS. Check out his recently released Bear Market Survival Guide to learn how to defend your portfolio against market volatility.