Friday's Vital Data: Baidu, Roku and Microsoft

U.S. stock futures are roaring back this morning proving once again that there is an undying bid beneath the market. Yesterday marked the first down day in nine trading sessions for the Russell 2000 Index. But it was barely a flesh wound. Stocks rallied into the close, paring the losses considerably and with the overnight rally we’ve all but recouped the lost ground.

Heading into the open, futures on the Dow Jones Industrial Average are up 0.38% and S&P 500 futures are higher by 0.3%. Nasdaq-100 futures have added 0.35%.

Yesterday’s pullback did scare the children enough to drum up put demand. Though call volume still won the day, the margin of victory was slimmer than usual. Specifically, about 15.2 million calls and 14.6 million puts changed hands on the session.

The put surge finally breathed new life into the single-session equity put/call volume ratio. It spiked to 0.66, which is a new two-week high. Meanwhile, the 10-day moving average remained pinned once again at 0.60.

Options traders focused, yet again, on earnings announcements. Baidu (NASDAQ:BIDU) and Roku (NASDAQ:ROKU) both reported numbers that surpassed the Street’s expectations. Meanwhile, Microsoft (NASDAQ:MSFT) exhibited relative strength and scored a breakout on the day.

Let’s take a closer look:

Baidu (BIDU)

Though earnings season is winding down there are still a few stragglers releasing their quarterly reports. Last night Baidu revealed its fourth-quarter performance and investors seem to be pleased with the results. The Chinese internet company known for dominating the search market in China raked in earnings of $1.92 per share on $3.96 billion of revenue. Both numbers bested the Street’s estimates of $1.79 earnings per share and $3.88 billion in revenue.

BIDU is poised to open about 1.30% higher.

While U.S. stocks have been roaring back, Baidu shares have done little to reclaim their former glory. Though they were able to climb above the 50-day moving average, the $177 resistance zone needs to be broken before we can get excited about the budding uptrend.

On the options trading front, optimism surrounding the earnings release drove call demand. Total activity grew to 250% of the average daily volume, with 77,510 total contracts traded. 61% of the trading came from call options alone.

Ahead of the event, options were pricing in an earnings gap of 4.4%, so this morning’s 1.5% jump is arriving well within expectations. Look for implied volatility to sink at the open as the earnings uncertainty gets rapidly unwound.

Roku (ROKU)

The ongoing recovery in Roku shares was finally put to the test last night — and it passed with flying colors. The technology company known for its streaming media device beat Wall Street’s estimates on the top and bottom line. For the fourth quarter, ROKU earned 5 cents per share on $275.7 million in revenue. Analysts were expecting earnings of 2 cents on $14.08 million.

Since bottoming last December at $26.30, ROKU stock had almost doubled ahead of last night’s report. Which means much of the enthusiasm over its earnings turnaround was baked in. Nonetheless, the stock is up another 5.73% in early morning trading.

The next resistance zone is $60, so I’d shoot for that as a logical upside target in the short run.

Pre-earnings jitters look to have lifted put trading ahead of last night’s release. Activity boosted to 242% of the average daily volume, with 92,197 total contracts traded. Puts accounted for 51% of the day’s take.

The options board was pricing in a 10.8% move ahead of earnings, so this morning’s 7% pop falls well within the expected range. Chalk this up as a win for volatility sellers.

Microsoft (MSFT)

On a day where most stocks finally succumbed to gravity, Microsoft was flying high. The relative strength is telling and could spell additional upside to come. Yesterday’s breakout ends the month-long consolidation in MSFT and sets the tech titan up for a revisit of its 2018 peak.

Options traders certainly took note, driving total activity to 143% of the average daily volume, with 235,724 total contracts traded. Calls outpaced puts 57% to 43%.

The lack of fear surrounding MSFT shares has driven implied volatility into the cellar. At present, the reading sits at 21% or the 13th percentile of its one-year range. The cheap premiums suggest long option plays are the way to go for those inclined to play.

As of this writing, Tyler Craig didn’t hold a position in any of the aforementioned securities. Check out his recently released Bear Market Survival Guide to learn how to defend your portfolio against market volatility.

Source link