Treasury yields made the news recently when the 10-year Treasury yield hit 3% for the first time since early 2014. Shorter-term rates have been increasing even faster. The spread between the 2-year and 10-year Treasury yields has narrowed to its lowest level since late 2007, just before the 2008 stock market crash. This week, I'm analyzing how stocks performed in the past based on the level and behavior of the yield spread.

Yield Spread In Free Fall

The chart below shows the spread between the 2-year and 10-year Treasury yields to be in free fall. It recently fell below 50 basis points, worrying some investors that it will soon be negative. The last two major market tops occurred when the spread was below zero.

Next, I put some numbers behind the chart above. I went back to 2000 and found the S&P 500 Index (SPX) returns going forward one year based on the yield spread. I grouped the returns into five brackets so that each bracket had the same number of returns. We recently just crossed into that top bracket in which the yield spread is below 50 basis points. At this level, the S&P 500 averages a loss of 2% over the next year, with less than half of the returns positive. The table makes it clear. Since 2000, the higher the yield spread, the better stocks have done.

However, the time frame you look at matters a lot here. If you take the data back just one decade, to 1990, then it paints a different picture. With the spread around 45 basis points, that puts it in the second bracket in the table below -- which has extremely bullish returns. That bracket has the highest average return, above 16%, and the second highest percentage of positive returns at 88%.

So which data should we look at? The table above is more recent, so you can make a case that it's more relevant to the current environment. On the other hand, the table below covers a longer time frame so has a bigger sample size. In my opinion, one thing that discredits the table below is the seemingly random returns of the brackets. You see outsized returns in the second and fifth bracket, while the other brackets are similar in performance.

 

Direction of Yield Spread Matters

Looking at the data since 2000, I broke down the returns in each bracket further by whether the yield spread was falling or rising. As you can see in the first chart above, the spread is currently decreasing. On the bright side, when the yield is less than 50 basis points, stocks have done better when the spread is narrowing. They still haven't done great, averaging a gain of 2.67% over the next year, with 67% of those gains positive. But compare that to when the spread is rising at that low level. In that case, the S&P 500 averages a double-digit loss with less than 15% of the gains positive.

Implications of a Sinking Yield Spread

You can see why the yield spread falling to extremely low levels has investors worried. Since 2000, when the yield spread falls at these levels, stocks tend to underperform. If the spread falls below zero and then bottoms though, that's an even worse scenario. In that case, you'll have a yield spread rising from an extremely low level. The table just above shows that's the worst environment for stocks.

Short-term volatility expectations are elevated on Tesla Inc (NASDAQ:TSLA) ahead of the electric carmaker's first-quarter earnings report, due out after tonight's close, per the stock's 30-day at-the-money implied volatility of 54% -- in the 90th percentile of its annual range. And while this isn't too surprising given the uncertainty surrounding a company's quarterly results, one options trader is apparently hoping to profit on a post-earnings volatility crush.

Specifically, the stock's weekly 5/4 310-strike call was most active yesterday, and data from Trade-Alert indicates a number of these positions were sold to open. Implied volatility on the option jumped 11.6 percentage points to 97.1%, bringing the closing price for the call to $6.42. Ideally, the call writers will be able to buy back the options at a lower price, should implied volatility decline after earnings.

The $310 region has marked a ceiling for TSLA stock since late March, but before that, served as a floor for most of the first three months of 2018 -- and coincides with Tesla's year-to-date breakeven mark. Today, the shares were rejected earlier near $302.50 -- a 50% Fibonacci retracement of their February through April sell-off, and are currently churning just below the round $300 mark at $299.60, after Nikola Motor said it is suing the company for patent infringement in its Tesla Semi design.

However, if history is any guide, TSLA stock could be due for volatile trading tomorrow. Over the past eight quarters, the shares have averaged a single-session post-earnings move of 5.2%, regardless of direction, with the options market pricing in an 11.2% swing for Thursday. While a move of this magnitude to the upside would put Tesla well above the 310 strike, the reactions to earnings have been negative in four of the past five quarters -- including the two most recent.

And while the action in the options pits seems more targeted toward implied volatility, broader sentiment on Wall Street is certainly more skeptical in nature. Short interest, for example surged 20.6% in the most recent reporting period to a record 38.26 million shares. These bearish bets represent 30.5% of TSLA's available float, or 2.9 times the average daily pace of trading.

Elsewhere, 11 of 17 analysts covering Tesla stock maintain a "hold" or worse rating. Plus, the average 12-month price target of $316.92 is a slim 5.6% premium to current trading levels.

It's the thick of earnings season, and Apple (AAPL) is dominating headlines today with its impressive results. In response, several Apple suppliers are trading higher today including Cirrus Logic, Inc. (NASDAQ:CRUS), Qorvo Inc (NASDAQ:QRVO), and Skyworks Solutions Inc (NASDAQ:SWKS). The three names will remain in focus, too, with CRUS and QRVO slated to report earnings after tonight's close, and SWKS on tap for tomorrow night.

Cirrus Logic Trades Below Familiar Resistance

Over the last eight quarters, Cirrus Logic stock has closed lower in the session after the company reports earnings four times -- including the three most recent. On average, the shares have swung 7.9% the next day, regardless of direction. This time around, the options market is pricing in a bigger one-day move of 11.4%.

Based on its current price at $38.43 -- up 1.4% on the day -- a move of similar magnitude lower would put CRUS stock below its two-year low of $34.78, which it touched on April 25. More broadly, the shares have given back nearly 25% in 2018, guided lower by their descending 40-day moving average.

Another negative post-earnings reaction could have analysts re-evaluating their bullish outlooks. Of the nine brokerages covering CRUS, four still rate it a "buy" or "strong buy." Furthermore, CRUS's average 12-month price-target of $51.33 represents a 32% premium to the stock's current perch. 

Put Buyers Blast Qorvo Stock Ahead of Earnings

Qorvo has a mixed history of earnings reactions. While the shares gained more than 16% in the session following the company's February report, it's logged single-session post-earnings losses in five of the last eight quarters. For tomorrow's trading, the options market is pricing in a move of 8.7% in either direction, larger than the average swing of 5.6% in the past two years.

Looking closer at the charts shows Qorvo stock has struggled since hitting a two-year high of $86.84 on March 12 -- down 17%. And while the shares are trading up 0.4% at $72.08 today, they are running out of steam near their 120-day moving average, which contained a mid-April rebound attempt, too.

Options traders have been bracing for even more downside. The stock's 10-day International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) put/call volume ratio of 5.10 is in the 98th annual percentile. This indicates long puts have been initiated relative to calls at a much quicker-than-usual clip over the past two weeks, albeit amid relatively low absolute volume.

Skyworks Solutions Stock at Risk for Downgrades

Skyworks Solutions stock popped 10.4% in the session after the Apple supplier unveiled earnings last February. However, SWKS has closed lower the next day in five of the past eight quarters. For Friday's trading, the options market is pricing in a 9.1% post-earnings move, more than the 6% swing in either direction the stock has averaged over the last two years.

With SWKS last seen at $91.42-- up 0.6% so far today -- a drop of this amount would have SWKS trading near $83 for the first time since the January 2017 bull gap. This negative price action would be more of the same for the shares, which have been racing lower since their mid-March highs near $116.

Upbeat analysts have refused to budge on Skyworks stock, though. Of the 22 brokerages covering SWKS, 18 rate it a "buy" or better. Even the security's average 12-month price target of $114.63 sits at a 26% premium to its current perch. Continued technical struggles could prompt analysts to downwardly revise their optimistic outlooks.

The shares of drugmaker Immunomedics, Inc. (NASDAQ:IMMU) have been virtually unstoppable lately, pacing for a fourth straight weekly gain and fresh off a 16-year high. What's more, IMMU is one of the few stocks currently trading near new highs while simultaneously sporting attractive short-term option premiums -- even with earnings around the corner -- and previous signals of this kind have preceded big-time rallies for Immunomedics shares.

IMMU stock was last seen 1.6% higher to trade at $19.37, and earlier today notched a 16-year peak of $19.64. The security has already added 14.4% so far this week, after scoring a massive April gain of almost 25%. In fact, since skimming the $2 level in late 2016, the shares of IMMU have rallied about 900% atop support from their 32-week moving average.

Meanwhile, the stock sports a Schaeffer's Volatility Index (SVI) of 81.6% -- higher than just 17.7% of all other readings from the past year. This indicates that Immunomedics' short-term options are pricing in relatively low volatility expectations right now -- a boon for would-be premium buyers.

Since 2008, there have been five other times where IMMU stock was trading near new highs and had an SVI in the bottom 20% of its annual range. The shares were higher one month later four of those times, with the biotech averaging a gain of 13.98%, according to Schaeffer's Senior Quantitative Analyst Rocky White. A similar surge from current levels would put IMMU around $22.08 -- deeper into decade-plus-high territory.

What's more, a short squeeze could propel the pharma stock even higher. Short interest represents more than a quarter of IMMU's total available float, equating to more than three weeks' worth of pent-up buying demand, at the security's average pace of trading.

As alluded to earlier, Immunomedics is slated to report earnings after the close on Tuesday, May 9. Traders looking to take advantage of relatively cheap near-term call options should note that IMMU stock moved higher the day after reporting following four of its last five reports.

Data storage specialist Pure Storage Inc (NYSE:PSTG) has been a standout over the past year, from a technical perspective. The stock has gained 83% year-over-year, with key support coming into play from its 80-day moving average. And based on previous returns, now may be the time to trade the latest PSTG pullback to this key trendline.

Over the past three years, there have been three occasions where PSTG has pulled back to within one standard deviation of its 80-day moving average after spending an extended stint above this trendline, according to Schaeffer's Senior Quantitative Analyst Rocky White. For our purposes, that's defined as PSTG trading above its 80-day at least 60% of the time over the past two months, and at least eight of the last 10 trading days.

The five-day returns following these 80-day tests are not particularly compelling; they're only 67% positive, with an average return of 0.9%. However, 21 days after testing its 80-day moving average, PSTG is higher 100% of the time, and sports an average return of 13.7%.

From the stock's current perch at $20.22, a rally of this magnitude would place PSTG at $22.99. That's just north of the equity's reigning all-time intraday high of $22.60, which was set back on Feb. 27.

This time around, the PSTG bounce from its 80-day moving average could be accelerated by a short-squeeze rally. Short interest on the outperforming stock rose 10.2% in the most recent reporting period, and now accounts for more than 14% of the equity's float. At PSTG's average daily trading volume, it would take nearly a week for all of these bearish bets to be covered.

Meanwhile, with Pure Storage not scheduled to report first-quarter earnings until after the market closes on May 21 -- one trading day after front-month options expiration -- short-term calls on the tech stock are going cheap. Specifically, Schaeffer's Volatility Index (SVI) of 41% ranks in the 25th percentile of its annual range, as front-month at-the-money options have priced in lower volatility expectations only 25% of the time over the past year. In other words, now is an opportune time to bet on another 80-day bounce via the stock's short-term calls.

It's been a rough stretch for retail stocks, with the SPDR S&P Retail ETF (XRT) currently staring at a 1.3% year-to-date deficit. Plus, according to data from Schaeffer's Senior Quantitative Analyst Rocky White, roughly half of the 87 stocks we track under the "General Retailers" umbrella are trading below their 80-day moving average. Nevertheless, there are still potential bullish trading opportunities within the sector, with Guess?, Inc. (NYSE:GES) among those sending up a possible "buy" signal.

Looking closer at the charts, GES stock has put in a strong outperformance in 2018, up 38%. The bulk of this upside came following a late-March earnings-induced bull gap, which sent the shares surging off a first-quarter floor near $14.50. The stock went on to notch a three-year high of $24.00 on April 12, and has since pulled back to support at its rising 20-day moving average.

What's more, with Guess earnings not scheduled for release until Tuesday, May 22 -- after May options expiration -- front-month implied volatilities are low. GES stock's Schaeffer's Volatility Index (SVI) of 40% ranks in the 14th annual percentile.

This could point to a prime call buying opportunity, especially considering there have been just two other times since 2008 that the equity was trading near 52-week highs while its SVI was so low. According to Rocky's data, these previous signals resulted in an average 21-day rally of 5.56% for the security, and a 100% win rate. Based on its current perch at $23.28, another move of this magnitude would put GES north of $24.50 for the first time since August 2014.

Continued short covering could also create tailwinds for Guess stock. Although short interest fell 10.4% in the most recent reporting period, there are still 7.94 million GES shares sold short -- 13.6% of the stock's available float, and 4.5 times the average daily pace of trading.

Square Inc (NYSE:SQ) pulled back earlier this week on a negative earnings reaction. Analysts weren't concerned, though, with Stifel upgrading the security to "buy" from "hold," and Jefferies saying it "would buy the dip." What's more, the retreat brought SQ stock back to a trendline with historically bullish implications -- suggesting the equity could be on the verge of another big breakout.

Specifically, Square stock is now trading within one standard deviation of its 80-day moving average after a lengthy stretch above it. For the purpose of this study, Schaeffer's Senior Quantitative Analyst Rocky White defines that as the equity trading above the moving average for 60% of the time over the past two months, and closing north of the trendline in eight of the last 10 sessions.

In the last six times this signal has sounded since Square first began trading publicly in November 2015, it's gone on to average a 21-day gain of 20.15%, and has been positive one month out 100% of the time. Based on the stock's current perch at $48.89, another move of this magnitude would put it near $58.75 -- and above its March 21 record high of $58.46.

A short-covering rally could also add fuel to a Square rebound. After falling from its March 15 record peak of 38.62 million shares in the April 1 reporting period, short interest has turned higher. The 35.92 million SQ shares sold short represent 13.6% of the stock's available float, or nearly four days' worth of pent-up buying demand, at the average pace of trading.

And for those wanting to bet on Square's next leg higher with options, the stock has consistently rewarded premium buyers over the past year. This is based on SQ's elevated Schaeffer's Volatility Scorecard (SVS) reading of 95 (out of 100), which indicates the equity has tended to make outsized moves over the last 12 months, relative to what the options market has priced in.

While most chip stocks rode a big Apple (AAPL) rally higher this week, Micron Technology, Inc. (NASDAQ:MU) lagged after the iPhone maker's chief financial officer warned of falling NAND prices. In fact, as AAPL stock heads toward a 12.5% weekly win -- its best week since October 2011 -- MU stock is up a modest 0.1% week-to-date, though the shares were last seen 1.8% higher in intraday action to trade at $47.48. But if history is any guide, today's rebound could have legs.

Taking a quick step back, MU stock hit a 17-year peak of $63.42 in mid-March. The shares quickly began selling off amid tech sector headwinds, but the slide has stalled out near familiar support at Micron's rising 160-day moving average.

According to data from Schaeffer's Senior Quantitative Analyst Rocky White, in the three other times the equity has come within one standard deviation of this trendline after spending a lengthy amount of time above it, MU stock has averaged a one-month return of 27.06%, and boasts a 100% win rate. Based on the stock's current perch, another such swing to the upside would put the tech shares north of the round $60 mark for the first time since late March.

Checking out the sentiment backdrop reveals most of Wall Street is still upbeat toward MU stock, which isn't too surprising given its 71% year-over-year return. The 53.50 million Micron shares sold short represent a low 4.8% of the stock's available float and would take fewer than one session to cover, at the average pace of trading.

Elsewhere, the consensus 12-month price target of $72.82 is a 53.2% premium to current trading levels. However four analysts still maintain a "hold" or "strong sell" rating on Micron, suggesting there's room for upgrades -- which could help fuel another big rally off the stock's 160-day trendline.

Rental car giant Hertz Global Holdings Inc (NYSE:HTZ) is scheduled to report first-quarter earnings after the market closes this Monday, May 7. Ahead of the event, HTZ stock has been notably quiet; the equity's 60-day historical volatility (HV) of 60% ranks lower than 94% of other such readings from the past year. However, options traders are betting on a bigger-than-usual post-earnings pop for Hertz shares.

Currently, Trade-Alert data places the implied daily earnings move at 17.3% for HTZ -- dwarfing its average post-earnings daily swing of 9.4% over the last two years. Those historical returns have been skewed to the downside, with HTZ falling the session after its earnings report in five of the last eight quarters. And of those eight most recent post-earnings performances, only one -- a 22.5% drop in November 2016 -- was large enough to meet or exceed the percentage move the options market is pricing in for Hertz right now.

Judging by recent option buying activity, many speculative players are looking for another big downside drop from HTZ after its first-quarter report. During the past 10 days, options traders on the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) have bought to open 3.47 puts for every call on Hertz. This ratio arrives in the 89th percentile of its annual range, confirming a stronger-than-usual skew toward bearish bets over bullish.

Meanwhile, 30-day at-the-money implied volatility (IV) on HTZ options checks in at 81.3%, in the 77th annual percentile. In other words, short-term bets are pricing in higher-than-normal volatility expectations. Plus, the 30-day IV skew of 12.3% ranks in the 85th annual percentile -- meaning short-term puts have rarely been more expensive than calls, on a volatility basis.

Short sellers have piled on, too. Nearly 56% of the stock's float is sold short -- and at HTZ's average daily volume, it would take more than 13 trading days for all of these shorted shares to be covered.

In light of the stock's unimpressive post-earnings track record, the pessimism surrounding HTZ ahead of earnings isn't too surprising. From a broader view, HTZ recently managed to notch a couple of weekly closes above formerly stiff resistance at its 80-week moving average. But the stock, last seen trading at $21.28, has been churning just below its year-to-date breakeven point of $22.10 since early February, and a long-term pattern of lower highs dating back to the second half of 2014 remains intact.

The heavy-handed pessimism toward HTZ leaves room for an upside surprise, should the quarterly results come in above expectations on Monday night. However, it's worth pointing out that a roughly 16% drop in short interest since the start of October hasn't been sufficient to snap the stock out of its long-term decline -- so while the earnings report may drum up some of the volatility Hertz stock has been missing lately, any upside could be limited as the more firmly entrenched shorts look to build their stakes on a deeper decline.

It was déjà vu last week, as the day-to-day market action felt just like prior weeks. In other words, a lot of movement that amounted to nothing but noise from the perspective of weekly closing levels. My Friday mid-afternoon tweet below, listing the SPDR S&P 500 ETF Trust's (SPY - 266.02) weekly closes going back to mid-April, gives you a nice numerical perspective. For what it's worth, the SPY's 2017 close of $266.86 seems to be a major point of resistance, when focusing on weekly closes.

$SPY:
4/13 close $265.15
4/20 close $266.61
4/27 close $266.56
5/4 close ???.?? (currently $265.13)

— Todd Salamone (@toddsalamone) May 4, 2018

And with the latest close this past Friday, May 4, arriving at $266.02, phrases that pop into my head to describe the SPY's price action since mid-April are: "going nowhere fast"; "directionally challenged"; "stuck in neutral"; "spinning its wheels"; "a vicious circle"; and "an endless loop."

Fortunately, with the last couple of weeks marking the heart of earnings season, individual equities have given traders the opportunity to profit, powered by big earnings reactions that echo a theme I have discussed for several weeks: shortening your time frame to counter the daily volatility that has yielded nothing over a period of weeks.

There were a few macro factors last week that could have pushed stocks decidedly one way or the other, such as the Federal Open Market Committee (FOMC) meeting and the beginning of trade talks with China. However, there were no major surprises on either front, as the Fed did not raise rates and the U.S. delegation in China did not come to an agreement with Chinese leaders on demands from both countries, although they agreed to continue talking. The two events ultimately left investors with lingering questions, such as, "Will there be three or four rate increases in 2018?" and "Will China and the U.S. eventually find a middle ground and avoid a trade war?"

It was Friday's employment report that lifted stocks from recent support levels, as the unemployment rate slipped below 4.0% amid no visible signs of wage inflation, assuaging recent fears -- at least temporarily -- of rising inflation and slower growth.

If you're paying attention to the daily action, U.S. equity benchmarks again traded lower during the week, but found support at key levels that I have discussed in the past as having significance. For example, the SPY rebounded from $260, which is equivalent to the round 2,600 century mark on the S&P 500 Index (SPX - 2,663.42). The exchange-traded fund (ETF) dipped intraday below its popular 200-day moving average, only to close back above it ahead of Friday's rebound day. It was the fifth touch or near-touch of this moving average since early February, as the $260 level continues to assert its importance as a support area.

From an options-related perspective, as you will see later in this discussion, it was important that $260 held. However, the March "Fed day" close just above $270 continues to be an important resistance level, as does the area just below $273, which is where a line connecting the January and March highs lives currently.

As the SPX and SPY were testing support, so too was the Russell 2000 Index (RUT - 1,565.60), a small-cap stock benchmark. The RUT's low last week occurred around its 2017 close. In other words, whereas the SPY's year-to-date (YTD) breakeven mark has been a source of resistance from a weekly closing perspective, the RUT's YTD breakeven mark -- just above the important 160-day moving average -- became a source of support in last week's trading. The price action in these two benchmarks has taken slightly different paths. For example, both are marking lower highs on rally attempts, but the RUT has also made a series of higher lows, whereas the SPY lows have occurred around the same level.

Bulls would like to see the RUT take out 1,585, which is where a trendline connecting lower highs since the January peak is currently sitting. But the round 1,600 level is yet another potentially powerful source of resistance, as there have been two failures at this century mark already this year.

The Nasdaq Composite (IXIC - 7,209.62) found support at a key round number last week -- specifically, the 7,000 millennium mark -- and its own 160-day moving average, which acted as support in February and early April. From a short-term perspective, the IXIC comes into the week roughly equidistant from important support and resistance areas.

The IXIC 6,900-7,000 zone, as you can see in the chart below, is home to a round number, a key moving average, its YTD breakeven (6,903), and a trendline connecting the February and March lows. The 7,500-7,600 area represents a round number that marked the January high, in addition to an area from which a major gap lower occurred in March. Plus, 7,600 is the site of the March peak, which corresponds with a round 10% move above the 2017 close.

As noted above, the SPY's hold at the 260 strike last week was significant. I mention this because we are in that window within two weeks of a standard options expiration. Standard options contain larger amounts of open interest, and thus they can be more influential on equities, particularly as expiration nears -- sometimes exaggerating movements, or building an additional layer of support or resistance.

With that said, note on the graph below the huge put open interest at the SPY 260 strike. Our data sources indicate these options were bought to open, implying those who sold the put options and typically hedge will have to sell more and more S&P futures if the SPY moves significantly below this strike, in a process called delta hedging. The bigger the open interest, the more S&P futures that are likely to be sold, which could create a sharp downside move below the strike. Moreover, if momentum and technical sellers jumped on a break of $260, the put-heavy 250 strike could be the next magnet, as the open interest here was buyer-driven, too.

At the same time, as expiration nears and the SPY remains above both $250 and $260, one might expect a slow, gradual unwinding of short S&P futures positions related to these big put strikes. Time is on the side of the bulls as long as the SPY remains above $260 in the weeks ahead.

"There is a glimmer of hope for bulls... during the current tightening cycle that began in December 2015, the SPY has behaved much better in the short term in the immediate aftermath of the Fed holding rates steady relative to hiking rates.

"...the sentiment backdrop supports higher stock prices. However, if this year's lows are taken out, it becomes a matter of price action supporting the sentiment backdrop, therefore downgrading the significance of negative sentiment being a supportive factor for equities."
-- Monday Morning Outlook, April 20, 2018

The sentiment backdrop continues to favor the bulls, as we have seen pessimism build in this trading-range environment in which the highs for the SPX were last seen in January. And as I noted last week, equities have performed better in the short term when the Fed holds rates steady versus hiking rates during this tightening cycle. Therefore, with support continuing to hold on pullbacks and negative sentiment representing future buying power, the current environment favors the bulls. However, all bets are off if the support levels discussed earlier finally break down.

Continue reading:

• Indicator of the Week: What the Flattening Yield Curve Could Mean for Stocks
• The Week Ahead: Fed Presidents Speak Out as Inflation Data Rolls In

JD.com Inc (NASDAQ:JD) reports first-quarter earnings before the open tomorrow, and will be in particular focus after Chinese rival Alibaba (BABA) reported an earnings victory on Friday. Ahead of tomorrow's event, the options market is bracing for a larger-than-normal move from the e-commerce name. 

Over the last eight quarters, JD.com stock has closed lower in the session after the company reports earnings three times -- including two of the last three. On average, the shares have swung 5.5% the next day, regardless of direction. This time around, the options market is pricing in a bigger one-day move of 8.5%.

At last check, JD was trading at $38.54, up 2.3% on the day, despite receiving a price-target cut from Benchmark to $48 from $52. The shares have been guided lower by their descending 20-day moving average since late February, culminating in an annual low of $34.88 on April 25, though they're set to close above this trendline for the first time since March 12 today.

Meanwhile, options traders have continued to prefer calls over puts, but the latter contracts have actually seen unusual interest in recent weeks. Data from the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) shows the security's 10-day put/call volume ratio of 0.44 ranking in the 84th annual percentile. Moreover, JD's Schaeffer's put/call open interest ratio (SOIR) of 0.92 is just 13 percentage points from a 12-month high, showing short-term traders are less call-skewed than normal.

Shifting gears to today, calls again have the advantage on an absolute basis, more than tripling puts. However, the most popular contract overall is the weekly 5/11 35-strike put, where nearly 3,700 options have crossed. It's not clear how options traders are positioning themselves here, especially since open interest sat at 4,122 coming into today -- suggesting it's possible traders are actually closing positions.

Walt Disney Co (NYSE:DIS) is scheduled to report fiscal second-quarter earnings after the close tomorrow, May 9. The Dow stock has a history of relatively muted post-earnings price action, averaging a next-day move of just 2.2% over the past eight quarters. This time around, the options market is pricing in a bigger-than-usual swing of 6%, per Trade-Alert, and speculative players are positioning for a positive earnings reaction.

Over the past 10 days at the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), options traders have bought to open 26,536 calls, compared to 8,278 puts. Plus, the resultant call/put volume ratio of 3.21 ranks in the 94th annual percentile, meaning long calls have been initiated over puts at a faster-than-usual clip.

The June 105 call has seen the biggest increase in open interest over this time frame, and data confirms a number of positions were bought to open. By targeting June options versus May options, the premium buyers may be hoping to take advantage of implied volatilities that aren't pricing in earnings expectations. Term structure data currently pegs implied volatility for weekly 5/11 Disney options at 48.99%, while monthly June implieds are 23.76%.

 Today, though, the weekly 5/11 series is popular, accounting for five of Disney's 10 most active options. Buy-to-open activity is detected at the 103-strike call, in particular, and with a volume-weighted average price of $1.77, this makes breakeven for the call buyers at this Friday's close $104.77 (strike plus premium paid).

The last time DIS stock settled above this level on a weekly basis was late February -- when the shares got a lift from the success of "Black Panther." Since then, the security has lost 7.2%. Thanks to a record opening weekend for Disney's "Avengers: Infinity War," though, the equity bounced off recent lows near $98, and is now trading above the $101.50 mark -- a 23.6% Fibonacci retracement of its January through April retreat, and currently home to its 50-day moving average -- which had served as a speed bump since late March.