Call activity picks up on QQQ and TQQQ

Markets rallied going into Apple and Amazon’s earnings with the NDX closing 3.5% higher, the SPX 2.47% and the DJIA 1.85%. Implied volatilities dropped over the day with the 30d IVX losing 4 points for the NDX, 3 points for the SPX and 2 points for the DJIA.

After the close numbers from Amazon disappointed and the stock is now pointing to a loss of around 9% at the open while for Apple the guidance left investors disappointed and the stock is indicating around 2.5% lower.

Looking at sectors, the Communications and the Technology spaces traded pretty much in line closing about 4% higher on the day. Implied volatilities deflated significantly as well down around 5 points on the day.

The energy space was also supported closing more than 3% higher for the day.

At the single stock level, CRM rallied fairly strongly yesterday closing more than 6% up on the day. The stock is still trading about 28% lower on the year and it will be interesting to see how the name will trade going into its earnings at the end of May.

Traders looking to play a bounce in the name should take note of the implied volatility level trading almost at its highest level over the last 12 months.

Looking at the RT Spread Scanner and bull vertical spreads, the system suggests the following combinations as being the most attractive from a Risk / Reward perspective.

For instance, the July 200/270 bull vertical spread offer a risk/reward ratio of less than 15%.

Investors seemed pretty happy about the results in MRK and the stock jumped almost 5%. Being a relatively defensive name, the stock is already up 15.2% this year and traders seem to be eyeing the 12 months highs at $90.54.

Following earnings implied volatility in the name reset lower with the 60d IVX currently sitting around 22% at the low end of its range off the past 6 months.

After seeing what looked like profit taking, CVX seemed to have a fairly good day yesterday rising 3.5%. The stock is up 36% on the year and continues to trade fairly closely to Oil prices.

Volatility in the name has failed to reach its previous highs established early March as realized volatility has compressed over the past month and a half.

Looking at options activity, yesterday saw a little uptick in MRK volume for calls

At the index level, call activity for the NDX picked up slightly but it was on the related products that most of the action took place. Below we show the call open interest (bold) and the volume lines for QQQ and TQQQ on the call side.

Both ETFs reached 12 months highs in terms of open interest on the call side and trading activity has been increasing. It will be interesting to see how the market reacts over the next few days on the back of that buildup in activity.