Tuesday’s Vital Data: Starbucks, Boeing and Square

Stock Market

U.S. stock futures are creeping higher this morning in a continuation of the market’s low volatility lull. Quiet opens are just what the bulls need to keep the steady upward grind alive. We continue to be in a favorable environment for buyers.

Source: Shutterstock

Ahead of the bell, futures on the Dow Jones Industrial Average are up 0.05% and S&P 500 futures are higher by 0.04%. Nasdaq Composite futures have added 0.07%.

In the options pits, overall volume dropped off a cliff yesterday. I’d count the lack of excitement as a positive. Even though we saw selling early in the day, it didn’t spark any rush into put options. Fear is being kept at bay and complacency continues to reign. Approximately 15.4 million calls and only 12.2 million puts traded.

The gap between calls and puts did narrow slightly at the CBOE Volatility Index (VIX) with the single-session equity put/call volume ratio rising to 0.61. At the same time, the 10-day moving average bumped up to 0.59.

Options trading saw calls favored heavily in Starbucks (NASDAQ:SBUX), Boeing (NYSE:BA) and Square (NYSE:SQ), among others.

Let’s take a closer look.

Starbucks (SBUX)

Source: ThinkorSwim

Source: ThinkorSwim

Since peaking just shy of $100 in July, Starbucks shares have laid low. All told, SBUX stock has lost 17%, breaking its 50-day and 20-day moving averages in the process. But the 200-day? It’s putting up a fight.

The past five trading sessions have tried to push SBUX below the 200-day moving average, but buyers have quickly emerged to its defense. One thing helping their cause is the downtrend’s slowing momentum. Each successive downswing has fallen less, revealing sellers could be running out of steam. The falling wedge that could mean a rebound is finally in the cards.

Starbucks trades ex-dividend today, so traders were active in the options pits jockeying for positions ahead of the payout. Shareholders of record at yesterday’s close will receive 41 cents per share this quarter. That translates into an annual yield of 2%.

As is always the case with dividend day, call volume accounted for 91% of the session’s sum. Overall activity grew to 347% of the average daily volume, with 166,226 total contracts traded.

Implied volatility continued its drip lower and sits at a lowly 19%, which is also the 19th percentile of its one-year range. Premiums are pricing in daily moves of $1 or 1.2%.

Boeing (BA)

Source: ThinkorSwim

Source: ThinkorSwim

Boeing shares took flight Monday, rising 4.7% on nearly 400% of its average daily volume. The rally came after news that the aerospace giant could begin delivering 737 MAX aircraft by as early as December.

Despite the gains, BA stock’s chart remains a mess. Because of the sloppy trading range, all major moving averages are crisscrossing back and forth, rendering them virtually useless until a bona fide trend emerges. That said, Monday’s pop could tee BA up for a run toward the upper end of the range at $390.

Implied volatility jumped to 29% but remains cheap at the 22nd percentile of its one-year range. Bull call spreads are probably the smart way to go if you’re trying to capitalize on continued strength through year-end. Something like the Jan $370/$380 spread should do the trick.

The positive news lit a fire under call trading. Total activity pushed to over two-and-a-half times the usual daily volume, with 252,857 contracts changing hands. Calls drove 70% of the take.

Square (SQ)

Source: ThinkorSwim

Source: ThinkorSwim

Last week’s earnings announcement sparked fresh strength in Square shares. The catalyst was needed to wake the stock from its slumber — it had become a boring stock to track with little momentum last quarter. Unfortunately, overhead resistance remains stubborn and reversed the initial post-earnings rally. Yesterday buyers gave it another go but once again failed to break through the $65 ceiling.

But with accumulation returning to the SQ stock, and a bullish backdrop for equities heading into December, I think resistance is doomed to fail. And once it does, a quick trip to the 200-day moving average at $69 should be in the cards.

Buyers’ footprints were found with options trading on Monday. Calls outpaced puts by a modest margin driving 55% of the day’s tally. Total activity climbed to 203% of the average daily volume, with 145,276 contracts traded.

Implied volatility is extremely low at 37% or just the 4th percentile of its range. Long calls or, better yet, bull call spreads offer limited risk and high potential return on investment. Buy the Jan $65/$70 call spread for $1.70.

As of this writing, Tyler Craig held bullish positions in SQ. For a free trial to the best trading community on the planet and Tyler’s current home, click here

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