Today's Options Market Update

Bullish Momentum Continues for Equities.

Domestic stocks remain at all-time highs following the President's Day holiday weekend, getting a boost from upbeat earnings reports from Dow members Wal-Mart and Home Depot. Financials are higher as Treasury yields continue to gain ground and the energy sector is getting a boost from higher oil prices. A favorable eurozone business activity report is helping overshadow misses in U.S. manufacturing and services output. The U.S. dollar is rallying and gold is seeing pressure. Asian stocks finished mixed, while most European equity markets are moving higher.

At 10:50 a.m. ET, the Dow Jones Industrial Average and the S&P 500 Index are increasing 0.6%, while the NASDAQ Composite is gaining 0.5%. WTI crude oil is advancing $0.70 to $54.48 per barrel and Brent crude oil is rising $0.54 to $56.72 per barrel, while wholesale gasoline is flat at $1.74 per gallon. Elsewhere, the Bloomberg gold spot price is declining $4.58 at $1,233.89 per ounce, and the Dollar Index—a comparison of the U.S. dollar to six major world currencies—is rising 0.5% at 101.45.

Source: Schwab Center for Financial Research

Today’s Bullish Activity

Gapping up to a fresh all-time high this morning is Home Depot Inc. (HD + $2.11 to $145.11) after the world’s largest home improvement chain beat quarterly results on both the top and bottom line and announced a $15B share repurchase program. For the fourth quarter the company reported earnings of $1.44 per share ($0.10 beat) on revenue that grew 4.8% year-over-year to $22.21B (above the $21.81B expected). Calls are outpacing puts 5:4 with the February 24th 145.00 call getting the most attention from traders (volume is 1,521 vs. open interest of 1,019).

Another Dow-component trading to the upside is Wal-Mart Stores Inc. (WMT + $2.01 to $71.39) after the retail giant reported Q4 earnings of $1.30 per share ($0.01 beat) on revenue of $129.75B (below the $130.22B estimate) as comparable same-store sales increased 1.8% year-over-year (above guidance of +1.0-1.5%). Today’s 2% jump puts the stock above its 200-day SMA ($70.53) for the first time this year.  Calls are outpacing puts 2:1 with the February 24th 72.00 call leading the pack (volume is 1,566 vs. open interest of 8,523).

New 52-week highs (367 new highs today): Apple Inc. (AAPL + $0.72 to $136.44), Inc. (AMZN + $11.73 to $856.80), Ciena Corp. (CIEN + $0.21 to $25.81)

Notable Call Activity

Some unusual call activity (30:1 over puts) is being seen in Mattel Incorporated (MAT - $0.26 to $25.84) which is primarily being driven by activity on the March 17th 30.00 call. Volume on this contract is 30,880 (vs. open interest of 22,936) as contracts were exchanging hands for between $0.08 and $0.21 each. Most of the contracts were being bought for $0.10 which suggests bullish intent.

Today’s Bearish Activity

Leading the point decliners list over on the NASDAQ is Cracker Barrel Old Country Store Inc. (CBRL - $5.79 to $162.90) after reporting mixed quarterly results and providing soft guidance earlier this morning. For the second quarter the company earned $2.19 per share ($0.05 beat) on revenue of $772.7M (below the $780.78M expected) and guided Q3 EPS to a range of $1.75-1.85 versus the $1.93 consensus estimate. Calls are outpacing puts 4:1 with the June 16th 175.00 call being the most actively traded contract (volume is 200 vs. open interest of 601).

Also trading lower is Unilever PLC (UL - $4.13 to $44.40) after the consumer goods conglomerate confirmed that Kraft Heinz Company (KHC - $3.21 to $93.44) “amicably agreed to withdraw” its $143B (or $50 a share) merger proposal. Kraft made the offer last Friday and UL gapped up on the news from Thursday’s close of $42.57 to Friday’s close of $48.53, so the stock is still trading higher where it was prior to the announcement. UL calls are outnumbering puts 3:2 with the March 17th 45.00 call leading the way (volume is 620 vs. open interest of 1,954).

New 52-week lows (24 new lows today): Gulfport Energy Co. (GPOR - $0.35 to $19.13), Sabre Corporation (SABR - $0.17 to $21.13)

Notable Put Activity

Some heavy put activity (72:1 over calls) is being seen in Rice Energy Inc. (RICE + $0.22 to $20.20) which is primarily being driven by activity on the March 17th 19.00 put. Volume on this contract is 7,839 versus open interest of only 1 so it’s likely that this is all new positioning. Contracts were exchanging hands for between $0.50 and $0.55 each, including a 3,920 block that was bought at the ask price of $0.55 (suggesting bearish intent). The positioning comes ahead of the company’s Q4 earnings report which is scheduled to be released tomorrow after the market close.

Some heavy put activity (13:1 over calls) is being seen in Pandora Media Inc. (P - $0.35 to $13.23) as option traders target the March 10th 13.00 put. Volume on this contact is 7,897 versus open interest of only 313 so we know that this primarily represents new positioning. Contracts were mostly being bought at or near the ask price, including a 2,575 block which was bought at the ask price of $0.40, which suggests bearish intent. 

Volume Signals

Goldcorp Inc. (GG - $0.27 to $17.11): A couple of large blocks were seen trading on the January 2018 expiration as a 3,460 block traded for $0.69 on the 25.00 call and another block of the same size traded on the 35.00 call for $0.14 per contract. It appears that a block trader established a bull call spread for $0.55 per contract which reaches the maximum gain of $10.00 per contract if GG closes at or above $35.00 at expiration.

Ralph Lauren Corp. (RL - $0.11 to $78.28): Option volume is running at over seven times the daily average by mid-day which is primarily due to activity on the March 17th 80.00 call. Volume on this contract is 3,744 (vs. open interest of 1,465) which included a 1,955 block which was bought at the ask price of $1.60 (suggesting bullish intent).

Gauging Volatility

The CBOE Volatility Index (VIX + 0.20 to 11.69) opened above the 12.00 level, and above its 50-day SMA (11.78), but has lost some ground at the mid-day mark. VIX options volume has been average at 317,556 contracts (#3 on the top 10 most actives list) and the activity has been call-biased (4:1 over puts). The bulk of the volume is going toward the April 19th 24.00 call as volume is currently 50,031 vs. open interest of 70,334.


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