US Markets

Monday’s Vital Data: Home Depot, Snap Inc and Amazon

U.S. stock futures are trading higher this morning in a continuation of last week’s breakout. Optimism surrounding recent strides in the U.S.-China trade war survived the weekend intact, and investors have returned to the business of buying.

Friday's Vital Data: Bed Bath & Beyond, CVS and Merck

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Ahead of the bell, futures on the Dow Jones Industrial Average are up 0.22% and S&P 500 futures are higher by 0.34%. Nasdaq-100 futures have added 0.28%.

In the options pits on Friday, calls were the hot commodity during a session that saw overall volume climb to above-average levels. Approximately 20.1 million calls and 15.4 million puts traded.

Meanwhile, over at the CBOE, Thursday’s shallow reading in the single-session equity put/call volume ratio was followed-up by another low number of 0.56. The 10-day moving average continued its rollover with a drop to 0.66.

Options traders favored calls in several marquee names. Home Depot (NYSE:) shares stretched to a new record high amid higher than usual options volume. Snap (NYSE:) finally broke out of a falling wedge pattern on high volume and unusual call activity. Finally, Amazon (NASDAQ:) shares paused after Thursday’s breakout attempt, while buyers continued to chase calls.

Let’s take a closer look:

Home Depot (HD)

Home Depot shares ended the week on a high note, rallying to a new record close at $231.13. Robust earnings growth, coupled with a firm price trend, have propelled the home construction giant to a 33% year-to-date gain. This compares to only a 19.3% gain for the S&P 500. Momentum traders flocking to relative strength no doubt have HD stock sitting atop their respective watch lists.

Friday’s surge cleared a prior pivot high signaling an official breakout that should bring buyers to the yard. That said, HD is moving into overbought territory so it’s not the best entry point.

On the options trading front, calls outpaced puts by a wide margin. Total activity grew to 287% of the average daily volume, with 130,643 contracts traded; 86% of the trading came from call options alone.

Implied volatility remains in the lower quartile of its one-year range at 21%. The rank of 25% suggests selling puts, and bull puts will only yield small pay-days. If you’re inclined to chase here, bull call spreads (such as buying the Nov $230/$240) offer a better risk-reward.

Snap (SNAP)

Snap shares have technicians salivating after Friday’s textbook rally. The past month of consolidating took on the form of a falling wedge. And after pausing for a week to build momentum, SNAP stock finally burst higher with a high volume, 4.7% gain.

The jump carried SNAP above near-term resistance and its 20-day moving average and signals its next upswing has officially begun. Look for followthrough to push the stock back toward its 52-week high at $18.36.

Friday’s buying bonanza lit a fire under options trading with calls leading the charge in a big way. By day’s end, activity climbed to 283% of the average daily volume, with 259,428 total contracts traded. Calls accounted for 86% of the session’s sum.

Implied volatility ticked higher on the day but remained in the basement. At 52%, it rests at the 13th percentile of its one-year range. The low reading, coupled with Snap’s cheap price tag, make long calls a compelling buy here. The Oct $16 calls could work for a short-term speculative bet. Otherwise, grab the Jan $16 calls to give yourself more time.

    Amazon (AMZN)

    Thursday’s upside breakout in the tech-heavy Nasdaq is pointing the way for Amazon. Ever since July’s beatdown, AMZN stock has been stuck in a trading range or base, biding time until demand would return and its long-term uptrend would resume. But if last week’s awakening in stock indexes is any indication, the time for AMZN bulls to respond is now.

    Indeed, the stock did see a breakout attempt on Thursday, and though the follow through has been tepid, buyers hold the upper hand. Look for a run toward its 50-day moving average at $1,875.

    On the options trading front, calls won the popularity contest despite Friday’s down day. Activity swelled to 116% of the average daily volume, with 184,251 total contracts traded. Calls added 58% to the day’s take.

    The past month’s trading range has killed implied volatility. At 23% or only the 5th percentile of its one-year range, premiums are incredibly cheap here. Bull call spreads are a no-brainer if you’re banking on higher prices.

    As of this writing, Tyler Craig held bullish positions in SNAP. Check out his recently released to learn how to defend your portfolio against market volatility.

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    The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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