Tuesday’s Vital Data: First Data Corp, Ford and IBM

Stock Market

U.S. stock futures are trading slightly higher as the market tries to find its footing after Monday’s volatile trading session. The growing market correction reached a new low yesterday as the early morning strength once again gave way to weakness.

One news item of note this morning is General Electric’s (NYSE:GE) announcement during its earnings report that it will lower its quarterly dividend from twelve cents to one penny. The stock is currently trading lower premarket.

Against this backdrop, futures on the Dow Jones Industrial Average are up 0.24% and S&P 500 futures are higher by 0.32%. Nasdaq-100 futures have added 0.07%.

In the options pits, call and put volumes were balanced on the day. Specifically, about 20.2 million calls and 20.7 million puts changed hands on the session.

At the CBOE, the single-session equity put/call volume ratio ticked lower to 0.74. But with the growing number of spikes in the reading of late, the 10-day moving average ramped to its highest level since February at 0.7.

Options activity was driven by analyst actions, acquisitions, and earnings on Monday. First Data Corp (NYSE:FDC) whiffed on earnings and was summarily punished. Ford (NYSE:F) benefited from a Goldman Sachs (NYSE:GS) upgrade. Finally, IBM (NYSE:IBM) fell on news of its $34 billion acquisition of Red Hat (NYSE:RHT).

Let’s take a closer look:

First Data Corp (FDC)

Atlanta-based financial services company, First Data saw its shared demolished Monday following disappointing Q3 earnings. Earnings per share came in at 35 cents, missing the Streets estimates of 37 cents.

FDC fell 16.6% by day’s end as volume rocketed to its highest levels of the year. With the stock in a downtrend beneath all major moving averages all future rallies are now suspect. The next potential support zone is the gap area from April’s earnings release at $17.

On the options trading front, calls outpaced puts by a hefty margin despite the price swoon. Activity skyrocketed to 968% of the average daily volume, with 107,203 total contracts traded. 64% of the trading came from call options.

The post-earnings volatility crush was extremely mild thus far. Implied volatility remains at 50% or the 80th percentile of its one-year range. Traders are pricing in daily moves of 3.2%.

Ford (F)

Ailing automaker Ford received a much-needed boost yesterday in the form of a Goldman Sachs upgrade. In an analyst note, the investment bank raised its rating from “hold” to “buy” while lifting the price target to $12 which would mark a 29% gain to Monday’s closing price.

Yesterday’s rally is extending the post-earnings gains that were already lifting Ford from the abyss. All told, F stock has now risen 13.6% off its 52-week low in hopes that the worst is behind it.

On the options trading front, traders came after calls with a vengeance. Activity swelled to 269% of the average daily volume, with 217,287 total contracts traded. Calls dominated making up 77% of the day’s tally.

Implied volatility held steady on the day at 37%. It remains elevated at the 56th percentile and suggests traders continue to price-in daily moves of 2.4%.

International Business Machines (IBM)

Over the weekend IBM announced its largest acquisition ever. The tech giant is acquiring Red Hat (NASDAQ:RHT) for $34 billion. To finance the massive purchase the company reported plans of suspending share buybacks in 2020 and 2021.

The initial reaction for IBM’s share price was negative and though the stock mounted an intraday comeback, it ended well into the red, down 4%. Since its January peak, the stock has lost a third of its value. With IBM now desperately oversold, don’t be surprised if a rebound emerges but know this — rallies are made to be sold.

On the options trading front, calls slightly outpaced puts on the day. Activity lifted to 208% of the average daily volume, with 92,997 total contracts traded. Calls accounted for 55% of the day’s take.

The increased demand drove implied volatility higher on the day to a juicy 34%. We’re now at the 99th percentile of the one-year range, and the expected daily move is 2%.

As of this writing, Tyler Craig didn’t hold positions in any of the aforementioned securities. Want insightful education on how to trade? Check out his trading blog, Tales of a Technician.

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