Tuesday’s Vital Data: Twilio, AT&T and Bank of America

Stock Market

U.S. stock futures are trading lower this morning with tech stocks leading the descent. Yesterday saw heavy sector rotation with money exiting software stocks and entering energy and banks. While the movement is weighing on the Nasdaq Composite, it’s buoying the Russell 2000.

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Heading into the open, futures on the Dow Jones Industrial Average are down 0.13% and S&P 500 futures are lower by 0.20%. Nasdaq-100 futures have shed 0.34%.

In the options pits, call volume continued its recent trend of domination while overall volume levels came in near average levels. Specifically, about 20 million calls and 16.4 million puts changed hands on the session.

The gap between calls and puts did narrow slightly over at the CBOE with the single-session equity put/call volume ratio climbing to 0.59. Meanwhile, the 10-day moving average fell to a one-month low at 0.63.

Options activity was a mixed bag on Monday. Twilio (NYSE:TWLO) shares plunged drumming up big options volumes. AT&T (NYSE:T) gapped up over 5% on news of a $3.2 billion investment by Elliot Management. Finally, Bank of America (NYSE:BAC) saw substantial inflows amid the boom in banking stocks.

Let’s take a closer look:

options activity chart

Twilio (TWLO)

Software stocks have long been leaders during the bull market. But yesterday signaled a significant mood shift. While we could point to the mass exodus in many constituents, it was Twilio that commands our attention today. The San-Francisco-based cloud communications company fell almost 10% on its third-highest volume session of the year.

The descent broke multiple major support zones, including the 200-day moving average. This is the first time TWLO stock has seen the underbelly of the 200-day since February 2018. And while it’s now deeply oversold, rallies are all now suspect with the heap of fresh resistance looming overhead.

On the options trading front, calls were more popular than puts despite the day’s thrashing. Activity ballooned to 474% of the average daily volume, with 111,992 total contracts traded. Calls claimed 62% of the session’s sum.

Not surprisingly, implied volatility rose on the day to 52%. It’s still low though, at the 22nd percentile of its one-year range. While I wouldn’t suggest chasing new bear plays here, long puts or put spreads after a rebound makes sense.

AT&T (T)

Telecoms are normally sleepy stocks. But not when activist investors get involved. Yesterday, AT&T shares rallied as much as 5.2% after Elliot Management revealed a $3.2 billion stake in the communications giant. Elliot pointed toward AT&T’s attractive valuation after its two-year slide and made a case for the stock to push toward $60 over the next two years.

Trading volumes exploded with over 117 million shares traded, marking its most active session of the year. Many used the up-gap as an opportunity to ring the register, however, and T stock ended the day only 1.49% higher.

As far as options trading goes, calls led the charge while total activity rocketed to 445% of the average daily volume. By day’s end, 360,239 contracts traded. Calls accounted for 58% of the day’s take.

Implied volatility remains at the lower end of its one-year range at 18% or the 20th percentile. That means covered calls and naked puts aren’t paying much these days. The daily expected move is 47 cents or 1.3%.

Bank of America (BAC)

Bank stocks were booming alongside the energy sector yesterday. Sector rotation is the lifeblood of a bull market, and that was certainly on full display Monday. Rather than sparking a mass exodus, the profit-taking in software stocks and tech, in general, spurred a buying binge elsewhere.

Bank of America was one of the top beneficiaries, rallying 1.5% on above-average volume. The gains pushed BAC stock to a new one-month high, and it now sits well above the 50-day moving average. A run toward its 52-week high near $29 could be in the cards.

On the options trading front, we saw a renewed interest in calls. Activity zoomed to 186% of the average daily volume, with 489,514 total contracts traded. Calls contributed 66% to the tally.

Implied volatility lifted slightly on the session to 19%, but it remains in the lower quartile of its range at the 19th percentile. Premiums are baking in daily moves of 34 cents or 1.2%.

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.

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