Today's Options Market Update

Equities Continue Recent Push into Record Territory. 

Domestic stocks are adding to a solid weekly rise, with European equities poised for five-straight gains after yesterday's changes to the European Central Bank's asset purchase program. Also, U.S. consumer sentiment jumped and China delivered another upbeat economic report. Crude oil is extending a rebound, while Treasury yields and the U.S. dollar are continuing to climb. Gold is lower. Restoration Hardware issued disappointing guidance and Dow member Coca-Cola announced a CEO successor. Asia was mixed, though Japanese stocks rallied as the yen fell.

At 10:53 a.m. ET, the Dow Jones Industrial Average is up 0.3%, the S&P 500 Index is rising 0.4%, and the NASDAQ Composite is advancing 0.5%. WTI crude oil is increasing $0.55 to $51.39 per barrel and Brent crude oil is gaining $0.19 to $54.08 per barrel, while wholesale gasoline is flat at $1.51 per gallon. Elsewhere, gold is trading $8.57 lower to $1,162.21 per ounce, and the Dollar Index—a comparison of the U.S. dollar to six major world currencies—is up 0.5% at 101.64.

Source: Schwab Center for Financial Research

Today’s Bullish Activity

Gapping up to an all-time high this morning is Broadcom Ltd. (AVGO + $7.44 to $178.15) after the semiconductor company reported Q4 earnings of $3.47 per share ($0.09 beat) on revenue of $4.15B (above the $4.13B expected) on gross margins of 60.8% (guidance was for 59.5-61.5%). The company also guided Q1 revenue guidance to a range of $4.0-4.15B which is above the $3.96B consensus estimate. Calls are outpacing puts 3:2 with the December 9th 180.00 call getting the most attention from traders (volume is 1,282 vs. open interest of 1,511).

Leading the point gainers over on the NASDAQ is Biogen Inc. (BIIB + $15.45 to $304.99) after the biotech giant reported positive Phase 1b results for its experimental Alzheimer’s drug (Aducanumab). Separately, Biogen, along with partner AbbVie (ABBV + $0.72 to $61.62), received approval for their multiple sclerosis treatment from Health Canada. Today’s 5% jump puts BIIB above its 50-day SMA of $300.08. Option volume is put-biased (3:2 over calls) with the December 9th 297.50 put getting the most attention from traders (volume is 1,020).

New 52-week highs (502 new highs today): American Airlines Group (AAL + $1.76 to $49.81),Boeing Co. (BA + $0.46 to $155.85), Boyd Gaming Corp. (BYD + $0.47 to $21.47)

Notable Call Activity

Some unusual call activity (30:1 over puts) is being seen in Conagra Brands Inc.(CAG + $0.07 to $37.75) as the stock rallied to a fresh 52-week high earlier in the morning. Option traders were primarily targeting the December 16th 38.00 call where volume is 4,844 versus open interest of 271, so we know that we have new positioning here. Most of the contracts were being bought in various block sizes for $0.60 and $0.65.

Today’s Bearish Activity

Shares of Duluth Holdings Inc. (DLTH - $8.43 to $28.61) are under pressure after the retailer missed Q3 revenue estimates ($67.01M vs. $69.16M) and lowered guidance last night after the market close. Duluth lowered its full-year 2017 EPS estimate to a range of $0.52-0.60 (from $0.66-0.70) on revenue of $360-370M (from a prior range of $370-380M). Today’s 23% drop puts the stock below its 50-day SMA ($25.64) for the first time since November 9th. Put volume is dominating (3:1 over calls) with the December 16th 30.00 put getting the most attention from traders (volume is 320 vs. open interest of 2,737).

Also trading to the downside is Restoration Hardware Inc. (RH - $6.04 to $32.95) after the company beat quarterly estimates but issued guidance that came in below analyst’s estimates. For the third quarter the luxury home furnishings retailer reported earnings of $0.20 per share ($0.04 beat) on revenue of $549.3M (above the $527.38M consensus estimate). However, the company guided Q4 EPS to a range of $0.60-0.70 on revenue of $562-592M versus the respective $1.07 and $639.18M consensus estimates. Calls are outpacing puts 2:1 with the January 2017 35.00 call garnering the most attention from traders (volume is 6,106).

New 52-week lows (8 new lows today): Oncomed Pharma (OMED - $0.11 to $7.53), Tetra Technologies (TTI - $0.38 to $4.62)

Notable Put Activity

Shares of Marathon Oil Corp. (MRO - $0.20 to $18.18) are up roughly 25% over the past month but perhaps some options traders are looking for a pullback in the next couple of weeks. Some unusual put activity was detected on the December 23rd 17.00 put as volume is 5,438 versus open interest of 12,986. Most of the trades took place at or near the ask price, including a 2,710 block that was bought for $0.27, but since volume is above open interest we don’t know if this is opening or closing activity.  

Volume Signals

The Finacial Select Sector SPDR Trust (XLF + $0.17 to $23.65): This ETF was highlighted yesterday for some heavy call activity and this morning we saw another 125K block that was bought at the ask price of $1.27 on the March 2017 23.00 call.

There was also some unusual out-of-the-money call activity on Calpine Corp. (CPN + $0.23 to $11.51) as volume on the June 2016 15.00 call is currently 10,442 versus open interest of only 38. Most of this is due to a 10K block that was bought at the ask price of $0.40, which suggests bullish intent. It’s worth noting that the average daily volume is 566 contracts on this stock.

Gauging Volatility

The CBOE Volatility Index (VIX - 0.48 to 12.16) was briefly higher earlier in the morning but has pulled back as equity markets have continued to exhibit upward momentum. VIX options volume has been tepid at 135,471 contracts (#10 on the top 10 most actives list) and the activity has been call-biased (3:1 over puts). Most of the volume is going toward the December 21st 14.50 call as volume is currently 19,379 versus open interest of 51,517.

Shares of Bristol-Myers Squibb (BMY + $1.83 to $57.07) are seeing their biggest one-day move in roughly a month and some unusual call activity (4:1 over puts). The most actively traded contract is the December 16th 57.50 call as volume is 5,137 versus open interest of 15,830. What’s interesting is implied volatility is moving higher with the stock as the current average implied volatility level of 26.40 compares with yesterday’s closing level of 25.33. Most of the time implied volatility moves conversely with the price of the underlying asset but today’s bump may be due to the stock’s big percentage move (+3.33%). 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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