Today's Options Market Update

Bullish Momentum Continues as Dow, SPX Approach All-Time Highs.

U.S. and European equities are coasting following a two-day climb after the French Presidential election eased political risk concerns and earnings bolstered sentiment. The markets are digesting a mixed flurry of earnings, headlined by Dow members Boeing, Procter & Gamble and United Technologies, while waiting for details of President Trump's tax-reform plan. Treasury yields are cooling off after a recent rebound and the U.S. dollar is recovering from a two-day slide. Crude oil prices have turned higher following a bullish government oil inventory report, while gold is little changed. Asia posted a second day of gains.  

At 10:53 a.m. ET, the Dow Jones Industrial Average and the S&P 500 Index are rising 0.2%, while the NASDAQ Composite is ticking 0.1% higher.  WTI crude oil is increasing $0.63 to $50.19 per barrel and Brent crude oil is gaining $0.36 at $52.93 per barrel, while wholesale gasoline is off $0.01 at $1.61 per gallon. The Bloomberg gold spot price is trading $0.25 lower to $1,263.88 per ounce, and the Dollar Index—a comparison of the U.S. dollar to six major world currencies—is up 0.3% at 99.08.

Source: Schwab Center for Financial Research

Today’s Bullish Activity

Multiple stocks are moving higher after reporting quarterly results this morning:

 

  • Wynn Resorts (WYNN + $6.03 to $124.25): The casino and hotel operator reported Q1 earnings of $1.24 per share ($0.26 beat) on revenue of $1.48B (above the $1.4B expected); the stock is trading at the highest levels since late April of 2015; puts are slightly outnumbering calls 4:3 with the April 28th 118.00 put being the most actively traded contract (volume is 1,035).
  • iRobot Corp. (IRBT + $9.81 to $78.95): The maker of home robotics reported Q1 earnings of $0.58 per share ($0.27 beat) on revenue of $168.5M (above the $156M analysts had expected); looking ahead the company expects EPS of $1.45-1.70 per share on revenue of $780-790M versus the respective $1.70 and $775M consensus estimates; the stock is trading at a fresh all-time high; calls are outnumbering puts 5:2 with the May 19th 85.00 call getting the most attention from traders (volume is 550).
  • Twitter Inc. (TWTR + $1.67 to $16.33): The microblogging service provider reported Q1 earnings of $0.11 per share ($0.10 beat) on revenue of $548M (above the $513.04M expected); advertising revenue declined 11% year-over-year to $474M; average monthly active users were 328M for the quarter vs. expectations for 322M; today’s 9% jump puts the stock above its 50-day SMA for the first time since early February; calls are outnumbering puts 4:1 with the June 16th 16.00 call leading the way (volume is 12,776).
  • Edwards Life Sciences Corp. (EW + $10.58 to $109.50): The maker of heart valve systems and repair products reported Q1 adjusted earnings of $0.94 per share ($0.12 beat) on revenue of $883.5M (well above the $776.2M expected); the company also raised the lower end of its full-year 2017 revenue guidance from a range of $3.0-3.4B to $3.2-3.4B and raised its EPS guidance from a range of $3.43-3.55 per share from a prior range of $3.30-3.45 per share; the stock is trading at a six-month high and above its 200-day SMA ($100.96) for the first time since October 25th; puts are outnumbering calls 3:1 with the May 19th 100.00 call being the most actively traded contract (volume is 956).

New 52-week highs (363 new highs today): Adobe Systems Inc. (ADBE + $0.30 to $133.19),Arista Networks Inc. (ANET + $0.20 to $139.20), Cigna Corp. (CI + $2.49 to $158.45)

Notable Call Activity

It appears that some options traders are feeling optimistic about MGM Resorts International (MGM + $0.55 to $29.90), perhaps on the coattails of Wynn Resorts better-than-expected earnings, as the top nine most actively traded contracts are all calls. The June 16th 29.00 call is getting the bulk of the attention as volume is currently 4,594 (vs. open interest of 5,601), which primarily consisted of various sized blocks (500, 290, 285, 285, 285, etc.) that were bought at the ask price of $1.75.

Some unusual call activity (14:1 over puts) is being seen in First Solar Inc. (FSLR + $1.26 to $28.80) which is primarily being driven by activity on the May 19th 29.00 call. Volume on this contract is 5,307 versus open interest of 72 so it’s likely that this is all new positioning. The bulk of the activity on this contract consisted of various sized blocks (1,493, 1,204, 366, 290, etc.) that were bought at the ask price of $1.09 which suggests bullish intent. First Solar is scheduled to report Q1 earnings on May 2nd after the market close so this activity captures the potential impact of this event.

Today’s Bearish Activity

Here are some notable names moving lower on earnings

 

  • United States Steel Corp. (X - $8.13 to $22.98): The steel maker reported an adjusted loss of $0.83 per share (versus expectations for a profit of $0.35 per share) on revenue of $2.73B (below with the $2.91B expected); the company said it expects to report full-year 2017 earnings of $1.50 per share if conditions remain at current levels (below the $2.83 expected); today’s 25% drop puts the stock at a five-month low and below its 200-day SMA ($28.12) for the first time since March of 2016; puts are slightly outpacing calls with the June 16th 22.00 put getting the most attention from traders (volume is 5,647).
  • Seagate Technology (STX - $7.69 to $42.82): The data storage company reported Q3 earnings of $1.10 per share ($0.03 beat) on revenue of $2.67B (below the $2.71B expected); cash flow from operations was $426M versus the $340.6M consensus estimate; today’s 8% drop puts the stock below its 50-day SMA of $47.33; puts are outnumbering calls 3:2 with the April 28th 44.00 call leading the pack (volume is 3,112).
  • Capital One Financial (COF - $3.28 to $82.30): The provider of financial products and services reported Q1 earnings of $1.75 per share ($0.21 miss) on revenue of $6.54B (below the $6.63B expected); net interest income rose to $5.47B (vs. the $5.06B) while its provision for credit losses increased 14% to $2B; calls and puts are trading slightly even with the May 5th 81.00 put seeing the most action from traders (volume is 1,502).

New 52-week lows (41 new lows today): Dynegy Inc.  (DYN - $0.07 to $6.22),Nielsen Holdings PLC (NLSN - $2.04 to $39.55), Range Resources Corp. (RRC - $0.53 to $26.70)

Notable Put Activity

Three names are sticking out today as multiple put block trades were bought at or near the ask prices with volume above open interest (which suggests new bearish positions):

GGP Inc. (GGP - $0.12 to $22.49): A 3,900 block was bought on the June 16th 20.00 put (open interest is only 10) at the ask price of $0.27 – GGP is scheduled to report Q1 earnings on May 1st so this activity captures the potential impact of that event.

Vale SA (VALE - $0.09 to $8.86): A 10K block was bought on the May 19th 8.50 put (open interest is only 296) at the ask price of $0.24.

Garmin Ltd. (GRMN - $0.41 to $50.33): A 3,900 block was bought on the May 5th 50.00 put for $1.80 (when the bid/ask spread was $1.45 x 1.84) – GRMN is scheduled to report Q1 earnings on May 3rd so this activity captures the potential impact of that event.

Volume Signals

Kate Spade & Co. (KATE - $0.16 to $17.34) has seen unusual option volume over the past several weeks as speculation over a potential takeover continues to brew and this morning a 10K block was bought on the June 16th 17.00 call (open interest is zero so we know that this is a new position) for $1.70 when the bid/ask spread was $1.45 x $1.75, suggesting bullish intent.

A couple of decent sized blocks were seen trading on Teck Resources Ltd. (TECK + $0.22 to $21.48) as a 2,500 block was bought on the May 19th 23.00 call for $0.43 and another block of the same size was simultaneously sold on the May 19th 26.00 call at an average price of $0.095 (one 1,250 block was sold for $0.10 and another for $0.09) per contract. The $3.00-wide bull call spread was established for a net debit of $0.335 (x 2,500 contracts x 100 multiplier, excluding commissions) and suggests that the block trader feels that TECK can close above the break-even price of $23.335 at expiration.

Gauging Volatility

The CBOE Volatility Index (VIX + 0.11 to 10.87) is up slightly this morning but essentially hovering around 52-week lows as equity markets maintain recent bullish momentum. VIX options volume has been on the light side at 247,940 contracts (#3 on the top 10 most actives list) and the activity is call-biased (2:1 over puts) with the bulk of the volume going toward the May 17th 12.00 put (volume is 26,857 vs. open interest of 197,368).

Shares of UGG brand owner Deckers Outdoor Corp. (DECK + $2.59 to $61.33) are gapping up this morning following news that the company is exploring strategic alternatives, including a possible sale of the company. However implied volatility is essentially flat (41% vs. yesterday’s 40% level) which might be suggesting that options traders don’t feel that a sale, should one occur, is going to happen in the near-term (or perhaps they are not expecting a significant premium to the current price if a sale were to occur). Note: the average implied volatility represents an estimated value for a 30-day implied volatility at the current underlying price, based on a curve fit of option implied volatilities.       

 

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