Today's Options Market Update

Equities Mixed as Investors Digest Earnings & Data.

Domestic equities are hovering around the flat line, with a plethora of mixed economic and earnings reports joining yesterday's flare-up in U.S. and U.K. political uncertainty. Energy stocks are lower as crude oil prices are falling, while financials are higher on rebounding Treasury yields and earnings from Dow member Goldman Sachs. The U.S. dollar is modestly recovering from yesterday's drop, and gold is seeing some pressure, ahead of some Fed data and events later today. Asia finished mixed and Europe is diverging. 

At 10:57 a.m. ET, the Dow Jones Industrial Average is dipping 0.1%, the S&P 500 Index is flat, and the NASDAQ Composite is ticking 0.1% higher. WTI crude oil is falling $1.14 to $51.34 per barrel, Brent crude oil is dropping $1.18 to $54.29 per barrel, and wholesale gasoline is off $0.05 at $1.55 per gallon. Elsewhere, the Bloomberg gold spot price is declining $1.14 to $1,215.93 per ounce, and the Dollar Index—a comparison of the U.S. dollar to six major world currencies—is rising 0.3% at 100.59.

Source: Schwab Center for Financial Research

Today’s Bullish Activity

Gapping up to an all-time high is ASML Holdings NV (ASML + $8.69 to $124.60) after the semiconductor maker reported Q4 earnings of €1.23 (€0.25 beat) on revenue of €1.91B (above the € 1.77B expected). In addition, the company issued upside revenue guidance of approximately €1.8B which is above the €1.78B consensus estimate. Option volume is call-biased (2:1 over puts) with the January 20th 125.00 call getting the most attention from traders (volume is 429). 

Also trading to the upside is Jazz Pharmaceuticals PLC (JAZZ + $11.52 to $127.09) following news that the Food & Drug Administration (FDA) has granted the company’s petition to not approve any generic version of its sleep disorder drug (Xyrem). The stock ran up to its 200-day SMA ($130.47) earlier in the morning but subsequently backed off. Calls are outnumbering puts 5:2 with the June 16th 160.00 call leading the pack (volume is 500 vs. open interest of 8). 

New 52-week highs (88 new highs today): Applied Optoelectronics (AAOI + $0.53 to $30.97),Applied Materials (AMAT + $0.50 to $33.80), Rio Tinto PLC (RIO + $0.96 to $43.43)

Notable Call Activity

Shares of Hartford Financial ServicesGroup(HIG + $0.58 to $49.12) are rallying to a fresh 52-week high this morning and some options traders appear to be positioning for further near-term upside. The top three most actively traded contracts all expire on Friday (January 20th) – the 49.00 call (volume is 3,715 vs. open interest of 1,821), 49.50 call (volume is 1,912 vs. open interest of 189) and the 50.00 call (volume is 1,808 vs. open interest of 3,340). Most of the activity consisted of buying at or near the ask price which suggests bullish intent. 

Today’s Bearish Activity

Shares of Gigamon Inc. (GIMO - $12.70 to $31.35) after the networking-hardware company provided weaker-than-expected preliminary Q4 results last night after the market close. The company said that it expects Q4 EPS to be in a range of $0.35-0.37 (versus prior guidance of $0.36-0.38) on revenue of $84-85M (below a prior view of $91-93M). The stock is trading at a six-month low and below its 200-day SMA ($43.19) on the warning. Calls and puts are trading roughly even with the January 20th 35.00 call getting the most attention from traders (volume is 1,388 vs. open interest of 26).

Also trading lower is CSX Corp. (CSX - $1.29 to $36.80) after the railroad operator reported Q4 earnings of $0.49 per share on revenue of $2.86B (both were in-line with estimates) as freight volume declined 5% year-over-year. Looking ahead, the company said that it expects EPS growth (year/year) to be in the low-to-mid teens versus the +13.5%. Calls are outpacing puts slightly with the January 20th 38.00 call being the most actively traded contract (volume is 2,095).

Lastly, United Continental Holdings (UAL - $1.29 to $72.45) is losing some altitude after the airliner reported lackluster quarterly earnings last night after the market close. For the fourth quarter United reported Q4 earnings of $1.78 per share ($0.05 beat) on revenue of $9.05B (slightly above the $9.04B estimate) as passenger revenue per available seat mile decreased 1.6% year-over-year. Calls are outnumbering puts 3:2 with the March 17th 77.50 call leading the way (volume is 3,072).

New 52-week lows (26 new lows today): Fitbit Inc. (FIT - $0.10 to $7.26),Macy’s Inc. (M - $0.93 to $28.97), V.F. Corporation (VFC - $1.20 to $50.94)

Notable Put Activity

Some unusual near-term put activity (21:1 over calls) is being seen in VF Corporation (VFC - $1.18 to $50.96) as the stock drops to a three-year low. The top two most active contracts are the January 20th 50.00 put (volume is 6,229 vs. open interest of 4,247) and the January 20th 52.50 put (volume is 1,300 vs. open interest of 4,578) and the activity on both contracts primarily consisted of buying at or near the ask price (suggesting bearish intent).

Volume Signals

Royal Caribbean Cruises Ltd. (RCL + $0.11 to $85.10): A fairly large bull call spread came up on the radar earlier in the morning as a block trader bought 3K of the January 2018 100.00 calls for $5.08 and simultaneously sold 3K of the January 2018 125.00 calls for $0.98 per contract. The bullish spread cost $4.10 (x 3K contracts x 100 multiplier, excluding commissions) to establish and has the potential to be worth up to $25.00 per contract if RCL closes at or above $125.00 at expiration.

Salesforce.com Inc. (CRM + $0.62 to $75.64): A couple of block trades were seen trading on this cloud name as a block trader sold 7500 of the March 17th 65.00 puts for $0.63 and simultaneously bought 10K of the March 17th 80.00 calls for $1.91 per contracts. It appears that the block trader established a bullish ratio risk reversal spread which captures the impact of the company’s Q1 earnings release which is expected to be released sometime in late February.

Gauging Volatility

The CBOE Volatility Index (VIX + 0.60 to 12.47) touched a two-week high of 12.81 earlier in the morning and still remains firmly in positive territory as equity markets remain mixed. VIX options volume has been on the heavy side at 551,456 contracts (#3 on the top 10 most actives list) and the activity has been call-biased (2:1 over puts). The bulk of the volume is going toward the February 15th 20.00 call (volume is 64,554 vs. open interest of 184,831) and February 20th 17.00 call (volume is 64,554).

 

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