Trying to ring up a rally

04/03/20
  • RNG up 28% YTD, has surfed the “stay-at-home” wave
  • Biz communications specialist announced new video chat platform
  • Stock rallied more than 4% intraday Wednesday

Are we seeing the start of the stay-at-home wars?

While Zoom Video Communications (ZM) has become something of a phenomenon during the coronavirus lockdown, yesterday saw another stay-at-home stock, RingCentral (RNG) make a move into Zoom’s coveted video chat space.

RNG, which had already established itself with communications tech for businesses (and had been cited as a potential winner in the “stay-at-home” era), announced yesterday it was launching a videoconferencing platform called RingCentral Video.1 Cue the rally in RNG and the sell-off in ZM, which tumbled as much as 35% intraday before trimming its loss to around 10% by mid-afternoon.

Yesterday morning RNG call options volume was more than five times average, with the biggest chunk of trading in the April $230 calls—1,500 contracts had changed hands in the first couple of hours of the day, with open interest (the number of unclosed positions) of 1,600 contracts:

Chart 1: RingCentral (RNG) April call options. Heavy trading in April $230 calls.

Source: Power E*TRADE


If the buyer of those options was looking for the stock to pop before they expire in a couple of weeks, they’d need a roughly 4.4% rally from where the stock was trading midday yesterday (around $220.25) to get into the money.

RNG was already up more than 4% on the day at that point, and the following chart shows yesterday’s rally established Wednesday as a relative low some short-term traders may use as a risk point for upside plays (i.e., they’d get out if prices dropped much below that level):

Chart 2: RingCentral (RNG), 2/4/20–4/2/20. Swing low in place.

Source (data): Power E*TRADE


The stock’s 85% surge off its March 16 low propelled shares to a record high of $256.60 on March 30—a target bullish traders may have in their sights if the stock can hold Wednesday’s low (around $203)  amid the sharp down days that have become a regular feature of this market even when it’s in an upswing.

But even with overall market volatility still high, and RNG still up around 28% this year, experienced traders will likely keep trades—in either direction—on a relatively short leash. There’s no advantage to getting too attached to any one trade when others will inevitably be coming down the road.

Market Mover Update: Crude oil got a double shot of upside yesterday when China revealed it was purchasing oil for its strategic reserves,2 and reports surfaced that Saudi Arabia and Russia were getting ready to make nice after their price war helped drop prices to 18-year lows in recent days:

Chart 3: May WTI crude oil futures (CLK0), 4/2/20 (5-minute). Oil spikes on reports of possible production cuts

Source: Power E*TRADE


President Trump tweeted yesterday morning that the two nations were nearing an agreement on cutting oil production by 10 million barrels,2 but later the Kremlin denied any talks had occurred or were scheduled to take place.3 May WTI crude futures (CLK0) quickly surged more than 29% to $27.39/barrel, while the energy sector led the S&P 500 (SPX) to the upside.

And although crude pulled back as the day progressed, it held on to most of its gains, which may suggest the market is leaning toward believing a deal is on the way despite Russia’s denials. But if an announcement doesn’t come soon, the market could get whiplashed from disappointment.

From the econ front lines: Yesterday’s weekly jobless claims number showed 6.65 million people filed for unemployment in the US—double the previous week’s total, and around 10 times the highest reading from the 2008 financial crisis.  

Today’s numbers (all times ET): Employment Report (8:30 a.m.), PMI Services Index (9:45 a.m.), ISM Non-Manufacturing Index (10 a.m.), Baker-Hughes Oil Rig Count (1 p.m.).

Today’s earnings include: Constellation Brands (STZ).

 

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1 TheStreet.com. Zoom Video Rival RingCentral Offers New Videoconferencing Service. 4/2/20.

2 CNBC.com. Dow jumps more than 100 points after Trump tells CNBC Saudis and Russia will ease oil pressure. 4/2/20.

3 Barrons.com. Kremlin Denies Putin Spoke To Saudi Crown Prince. 4/3/20.

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