Tuesday’s Vital Data: Goldman Sachs, Home Depot and Walmart

Stock Market

U.S. stock futures are trading higher this morning as better-than-expected earnings from Home Depot (NYSE:HD) are boosting the Dow Jones Industrial Average by triple digits. The snap-back comes after Monday’s panic sent investors running for the exits.

Heading into the open, futures on the Dow are up 0.25% and S&P 500 futures are higher by 0.32%. Nasdaq-100 futures have added 0.45%.

In the options pits, put volume jumped yesterday eclipsing calls by a modest margin. Specifically, about 17.4 million calls and 18.8 million puts changed hands on the session.

Over at the CBOE, put demand ebbed despite the market downturn. The single-session equity put/call volume fell back to 0.73. The 10-day moving average held steady at 0.66.

Options activity ramped in a few well-known large caps on Monday. Goldman Sachs (NYSE:GS) shares suffered their worst day in seven years on new worries surrounding a bribery scandal. Home Depot and Walmart (NYSE:WMT) both saw selling pressure ahead of their respective earnings reports this week.

Let’s take a closer look:

Goldman Sachs (GS)

Goldman Sachs shares were demolished on Monday. By days end, the mass distribution had driven the stock lower by 7.5% on the highest volume trading session of the year. The culprit for the crash appears to be concerns over the 1MDB scandal. As reported by Investors Business Daily on Monday:

“U.S. prosecutors allege that Goldman bankers were involved in a bribery and kickback scheme led by a Malaysian financier to land Goldman $6 billion in deals to underwrite bonds for the fund, known as 1Malaysia Development Berhad. One of those bankers pleaded guilty in the case in August.”

GS stock now sits at a two-year low and is threatening to break a major horizontal support zone at $209.

On the options trading front, traders calls outpaced puts. Activity swelled to 263% of the average daily volume, with 88,635 total contracts traded. 60% of the total came from calls.

Implied volatility exploded higher on the day to 34% placing it at the 89th percentile of its one-year range. Option premiums are now pricing in daily moves of 2%.

Home Depot (HD)

Home Depot options were active ahead of this morning’s earnings report. October’s market carnage took a toll on Home Depot because of concerns surrounding rising interest rates and weakening home sales data. Nonetheless, the company posted solid numbers this morning and raised their fiscal 2018 sales guidance.

HD earned $2.51 per share on $26.3 billion revenue. The Street had expected $2.26 earnings per share on $26.26 billion revenue.

On the options trading front, puts outpaced calls on the day. Activity jumped to 243% of the average daily volume, with 76,521 total contracts traded; 59% of the trading came from put options alone.

The increased demand lifted implied volatility to 34% or the 67th percentile of its one-year range. The expected earnings move was $8.18, or 4.6%. With HD stock trading at $181.76 premarket, the price gap is within the expected range suggesting volatility sellers will awake to profits in their accounts.

Walmart (WMT)

Walmart shares have been the ultimate safe haven, beckoning to investors tiring of the losses hounding them elsewhere. WMT stock’s ascent has been relentless but profit taking finally took it down a notch on Monday. The slide comes as investors are gearing up for Thursday morning’s quarterly earnings report.

With last quarter’s earnings release having delivered such an epic up gap, shareholders’ hopes are running high into the event.

On the options trading front, calls ruled the action despite the day’s slide. Activity swelled to 230% of the average daily volume, with 109,800 total contracts traded. Calls accounted for 66% of the day’s take.

Implied volatility is rising ahead of the earnings release. At 29%, it now sits at the 56th percentile of its one-year range. Options premiums are pricing in an earnings gap of $5.31 or 5%.

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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