Today's Options Market Update

Stocks Lower Led by Financials.

Domestic stocks are lower following weakness in Europe and Asia, with U.S. and European political uncertainty festering. Financials are lower as Treasury yields extend a decline, and technology issues are paring a recent rally with earnings results from Hewlett Packard Enterprise disappointing. Results from Foot Locker and Nordstrom are being cheered, though J.C. Penney's same-store sales and guidance missed. New home sales missed forecasts, but consumer sentiment topped expectations. The U.S. dollar and crude oil are lower, while gold is higher.     

At 10:54 a.m. ET, the Dow Jones Industrial Average, the S&P 500 Index and the NASDAQ Composite are down 0.3%. WTI crude oil is declining $0.34 to $54.11 per barrel, Brent crude oil is decreasing $0.36 to $56.46 per barrel, and wholesale gasoline is off $0.01 at $1.74 per gallon. Elsewhere, the Bloomberg gold spot price is increasing $6.40 at $1,255.96 per ounce, and the Dollar Index—a comparison of the U.S. dollar to six major world currencies—is dipping 0.1% to 100.91.

Source: Schwab Center for Financial Research

Today’s Bullish Activity

Multiple stocks are moving higher in response to quarterly earnings reports/forecasts:

Universal Display Corporation (OLED + $12.88 to $80.33): The organic light emitting diode company reported Q4 adjusted EPS of $0.55 per share ($0.14 beat) on revenue of $74.6M (above the $69.1M expected); full-year 2017 revenue is expected to be in a range of $230-250M which is roughly in-line with the $242.7M analysts had expected; Stock is trading at a new 52-week high this morning; Calls and puts are trading roughly even with the March 17th 70.00 put getting the most attention from traders (volume is 2,163 vs. open interest of 2,199).

Applied Optoelectronics Inc. (AAOI + $10.33 to $47.80): the provider of fiber-optic network products reported adjusted Q4 EPS of $0.84 per share ($0.05 beat) on revenue of $84.9M (slightly above the $84.6M expected); Q1 adjusted EPS is expected to be in a range of $0.80 to $0.88 on revenue of $87-91M which is well above the respective $0.40 and $74.7M estimates; Stock is trading at a new 52-week high this morning; Calls are outpacing puts 2:1 with the March 17th 45.00 call being the most actively traded contract (volume is 672 vs. open interest of 494).

Foot Locker Inc. (FL + $5.61 to $74.19): the athletics shoe retailer reported Q4 EPS of $1.37 per share ($0.05 beat) on revenue of $2.11B (in-line with the $2.11B expected) as comparable same-store sales increased 5.0%; company expects full-year 2017 EPS to increase double digits (consensus estimate is for EPS to increase 9.3% to $5.27/share); Calls are outpacing puts 4:3 with the March 17th 65.00 put being the most actively traded contract (volume is 1,126 vs. open interest of 1,559).

RH (RH + $7.01 to $32.20): The company formerly known as Restoration Hardware said it expects Q4 adjusted diluted EPS of approximately $0.68 on net revenue of $590M versus the respective $0.65 and $584.71M consensus estimates; Board of Directors authorizes a $300M share repurchase program; Calls are outnumbering puts 3:1 with the March 17th 27.50 call leading the pack (volume is 1,078 vs. open interest of 5,031).

New 52-week highs (107 new highs today): Boeing Company (BA + $1.51 to $178.37),3M Company (MMM + $0.73 to $187.92), Altria Group Inc. (MO + $0.11 to $74.55)

Notable Call Activity

Some unusual call activity (7:1 over puts) is being seen in Activision Blizzard Inc. (ATVI + $0.40 to $45.49) which is primarily being driven by activity on the March 3rd 45.50 call (volume is 6,189 vs. open interest of 308). Contracts were exchanging hands for between $0.29 and $0.55 each and mostly bought at or near the ask price, including a 3,286 block which was bought at the ask price of $0.35, which suggests bullish intent. The March 17th 45.50 also had volume well above open interest (1,859 contracts vs. 199 open interest) and contracts were exchanging hands for between $0.63 and $0.98 each.

Today’s Bearish Activity

Shares of Acacia Communications Inc. (ACIA - $8.80 to $54.63) after the networking company beat quarterly estimates but provided disappointing guidance last night after the market close. For the fourth quarter the company reported adjusted earnings of $0.94 per share on revenue of $142.4M (above the respective $0.90 and $139.7M estimates) but said that Q1 earnings are expected to be in a range of $0.63-0.70 on revenue of $108-114M which is well below the respective $0.78 and $137.3M estimates.  Calls are slightly outnumbering puts with the March 17th 80.00 call leading the way (volume is 874 vs. open interest of 1,583).

Also trading lower on earnings is JC Penney Co. Inc. (JCP - $0.59 to $6.26) after the department store chain reported Q4 EPS of $0.64 per share ($0.03 beat) on revenue of $3.96B (below the $3.97B) as comparable same-store sales declined 0.7% year-over-year. The company also provided in-line guidance (full-year 2017 adjusted EPS of $0.40 to $0.65 vs. the $0.58 consensus estimate) and said that it plans on closing approximately 130-140 stores which will result in a first-half pre-tax charge of $225M. Calls are outnumbering puts with the February 24th 7.00 put being the most actively traded contract (volume is 2,425 vs. open interest of 16,760).

New 52-week lows (67 new lows today): DineEquity Inc. (DIN - $0.65 to $58.83), Brinker International Inc. (EAT - $0.11 to $42.06), Huron Consulting Group (HURN - $1.20 to $43.90)

Notable Put Activity

Some heavy put activity (14:1 over calls) is being seen in Nu Skin Enterprises (NUS + $2.53 to $49.75) as options traders primarily target the June 16th 50.00 put. Volume on this contract is 8,566 versus open interest of 575 which means we have new positioning here. Contracts were exchanging hands for between $4.30 and $4.80 each, including a 3,220 block which was bought at the ask price of $4.60 (suggesting bearish intent). Earlier in the morning the stock ran up to within $0.19 of its 50-day SMA of $50.72.

Volume Signals

Bank of NY Mellon Co. (BK - $0.40 to $46.93): Total option volume is running at four times the daily average at the mid-day mark and the activity is put-biased (14:1 over calls). Option traders were primarily targeting the March 3rd 46.50 put as volume is 3,420 versus open interest of 0 (so we know that this is all new positioning). The activity on this contract consisted of carious sized blocks which were being bought for $0.31 and $0.32 each which suggests bearish intent. The March 10th 46.50 put is also getting some attention as volume is 1,710 versus open interest of only 2.  

Utilities Select Sector SPDR ETF (XLU + $0.58 to $51.40): A 32.5K block traded for $0.43 (in the middle of the $0.42 x $0.44 bid/ask spread) on the March 17th 50.50 put versus open interest of only 316 so we know that this is a new position. XLU is trading at a six-month high this morning and is higher for the sixth day in a row.

Gauging Volatility

The CBOE Volatility Index (VIX - 0.09 to 11.74) touched its highest level this week earlier in the morning (12.59) but has reversed course and is now trading in the red. VIX options volume has been heavy at 801,481 contracts (#2 on the top 10 most actives list) and the activity has been call-biased (5:1 over puts). The bulk of the volume is going toward the March 22nd 17.00 call as volume is currently 148,878 vs. open interest of 350,011.

 

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Important Disclosures