Today's Options Market Update

Stocks Edge Lower as Investors Digest Earnings & Data.

U.S. stocks are oscillating around the unchanged mark amid a flood of major earnings reports, highlighted by results from Amazon and Alphabet, while profits figures from Dow members Exxon Mobil and Chevron are helping lift the energy sector along with a slight rebound in crude oil. Q1 GDP growth slowed more than expected and global political and geopolitical concerns remain. Treasury yields and gold are ticking higher, while the U.S. dollar is dipping. Asia finished mixed and European equities are diverging. 

At 10:49 a.m. ET, the Dow Jones Industrial Average and the S&P 500 Index are dipping 0.1%, while the NASDAQ Composite is flat.  WTI crude oil is rising $0.20 to $49.17 per barrel and Brent crude oil is gaining $0.29 at $52.11 per barrel, and wholesale gasoline is little changed at $1.56 per gallon. The Bloomberg gold spot price is trading $2.72 higher to $1,267.02 per ounce, and the Dollar Index—a comparison of the U.S. dollar to six major world currencies—is dipping 0.1% at 98.99.

Source: Schwab Center for Financial Research

Today’s Bullish Activity

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

 

  • Amazon.com Inc. (AMZN + $22.74 to $941.12): The e-commerce giant reported Q1 earnings of $1.48 per share ($0.38 beat) on revenue of $35.71B (above the $35.31B analysts had expected); the company issued in-line Q2 revenue guidance of $35.23-37.75B (vs. the $36.92B consensus estimate) and said Q2 operating income is expected to be between $425M and $1.075B which is below the $1.48B expected; the stock is trading at a fresh all-time high; calls are slightly outnumbering puts with the April 28th 950.00 call getting the most attention from traders (volume is 3,530).
  • Alphabet Inc. (GOOGL + $34.56 to $926.00): The online search and advertising giant reported Q1 earnings of $7.73 per share ($0.39 beat) on revenue of $24.75B (above the $24.17B expected); paid clicks rose 44% year-over-year vs the respective 39% and 32% seen in the prior two quarters; the stock is trading at a fresh all-time high; calls are outnumbering puts 3:2 with the April 28th 930.00 call leading the way (volume is 1,538).
  • Western Digital Corp. (WDC + $3.94 to $89.65): The hard disk and memory chip maker reported fiscal Q3 earnings of $2.39 per share ($0.25 beat) on revenue of $4.65B (above the $4.57B expected); the company provided in-line Q4 EPS guidance of $2.55-2.65 on revenue of $4.8B (vs. the respective $2.61 and $4.8B estimates); BMO increased their price target on the stock from $104 to $120 following the results; calls are outnumbering puts 5:2 with the April 28th 90.00 call being the most actively traded contract (volume is 1,564).
  • Royal Caribbean Cruises Ltd. (RCL + $7.00 to $107.50): The cruise company reported Q1 adjusted earnings of $0.99 per share ($0.06 beat) on revenue of $2.01B (slightly below the $2.02B expected); the company also raised its full-year adjusted EPS to a range of $7.00-7.20 from a prior $6.90-7.10; the stock is trading at an all-time high; puts are outnumbering calls 4:1 with the May 19th 105.00 call being the most actively traded contract (volume is 807).

New 52-week highs (164 new highs today): Alibaba Group Holding Ltd. (BABA + $0.13 to $115.56),Carnival Corp. (CCL + $1.11 to $62.10), Facebook Inc. (FB + $2.33 to $150.04)

Notable Call Activity

Shares of Aarons Inc. (AAN + $3.86 to $35.97) are trading at a 52-week high after the electronics retailer beat Q1 estimates on both the top and bottom line and some heavy call activity is coming up on the radar. Calls are outnumbering puts 20:1 with the May 19th 36.00 call garnering the most attention from traders. Volume on this contract is 3,251 (vs. open interest of 0) as contracts were exchanging hands for between $0.80 and $0.95 each.

Some unusual near-term call activity was being seen in Macy’s Inc. (M - $0.44 to $29.07) as option traders were targeting the May 5th 30.50 call. Volume on this contract is 3,758 (vs. open interest of only 117) which primarily consisted of various sized blocks (432, 298, 136, 131, 130, etc.) that were bought at the ask price of $0.14 and $0.15, which suggests bullish intent.

Today’s Bearish Activity

Here are some higher profile names that are moving lower on earnings

 

  • Intel Corp. (INTC - $1.37 to $36.06): The semiconductor company reported Q1 earnings of $0.66 per share ($0.01 beat) on revenue of $14.8B (in-line with the $14.8B expected); the company provided upbeat Q2 EPS guidance of $0.68 on revenue of $14.4B (vs. the respective $0.64 and $14.3B) and increased its share repurchase program from $5B to $15B; calls are outpacing puts 3:1 with the April 28th 36.50 call getting the most attention from traders (volume is 6,511).
  • Microsoft Corp. (MSFT - $0.07 to $68.20): The software giant reported Q3 earnings of $0.73 per share ($0.03 beat) on revenue of $23.56B (below the $23.62B estimate); revenue from the company’s personal computing unit decreased 7.4% to $8.84B versus the $9.22B expected; calls are outnumbering puts 3:2 with the April 28th 68.00 put leading the pack (volume is 8,838).
  • Starbucks Corp. (SBUX - $2.77 to $58.54): The specialty coffee retailer reported Q2 earnings of $0.45 per share (in-line with estimates) on revenue of $5.29B (below the $5.42B expected); global comparable same-store sales increased 3%; the company lowers full-year 2017 EPS guidance to a range of $2.06-2.10 from $2.09-2.11 per share; puts are slightly outnumbering calls with the April 28th 59.00 put being the most actively traded contract (volume is 2,686).
  • Athena Corp. (ATHN - $23.71 to $97.74): The cloud-based healthcare technology company reported Q1 earnings of $0.32 per share ($0.14 miss) on revenue of $285.4M (below the $296.5M expected); looking ahead Athena lowered its full-year 2017 revenue to a range of $1.21-1.25B from a prior view of $1.29-1.33B and adjusted operating income to a range of $120-140M from $170-190M; today’s 16% drop puts the stock below both its 50 ($114.75) and 200-day ($116.18) SMA; puts are outnumbering calls 3:2 with the June 16th 110.00 call seeing the most action from traders (volume is 507).

New 52-week lows (46 new lows today): Altisource Portfolio Solutions (ASPS - $0.70 to $21.10),GGP Inc. (GGP - $0.37 to $21.77), Kellogg Company (K - $0.28 to $70.68)

Notable Put Activity

Shares of General Mills Inc. (GIS - $0.10 to $57.31) touched a new 52-week low of $57.14 earlier in the morning and it appears that at least some options traders feel that there’s more downside. Puts are outnumbering calls 10:1 with the July 21st 55.00 put seeing the most action. Volume on this contract is 5,001 (vs. open interest of 1,814) which included a 2,976 block which was bought at the ask price of $1.20.

Volume Signals

Shares of Baidu Inc. (BIDU - $10.78 to $177.08) are under pressure despite reporting a Q1 EPS beat and it appears that a fairly large bear put spread was established out on the September 15th expiration. A 2,850 block was bought on the 155.00 put for $2.31 while another block of the same size was sold on the 145.00 put for $1.15 per contract. The $10.00-wide bearish spread cost a net debit of $1.16 (x 2,850 contracts x 100 multiplier, excluding commissions) to establish and suggests that the block trader believes that BIDU can drop below the break-even price of $153.84 by expiration.

Shares of Colgate-Palmolive Co. (CL - $1.18 to $72.12) are also trading lower on earnings but a 10K block was bought on the August 18th 82.50 call for $0.60 (when the bid/ask spread was $0.20 x $0.65). Since open interest is only 5,349 we know that this is a new position and since it was bought near the ask price it suggests bullish intent.  

Lastly, a fairly large bull call spread was seen in Oracle Corporation (ORCL - $0.23 to $44.54) as a 8,500 block was bought on the July 21st 48.00 call for $0.33 and another block of the same size was simultaneously sold on the July 21st 50.00 call for $0.11 per contract. The $2.00-wide spread cost a net debit of $0.22 per contract (x 8,500 contracts x 100 multiplier, excluding commissions) to establish and suggests that the block trader believes that ORCL can trade above the break-even price of $48.22 at expiration.

Gauging Volatility

The CBOE Volatility Index (VIX + 0.75 to 11.11) is moving higher as equity markets show some weakness at the mid-day mark. VIX options volume has been below average at 222,151 contracts (#6 on the top 10 most actives list) and the activity is call-biased (3:1 over puts) with the bulk of the volume going toward the August 16th 26.00 call (volume is 50,000 vs. open interest of 31,338). It appears that the volume on this contract consisted of a 50K block which was sold for $0.52 when the bid/ask spread was $0.50 x $0.55.

Shares of drug developer Sarepta Therapeutics Inc. (SRPT + $2.88 to $37.60) are trading higher following news that CEO Ed Kaye is resigning and that Board member Dr. Jean-Paul Kreese (who is currently a Sanofi executive) has decided not to run for re-election due to “a possible conflict of interest associated with his future endeavors”. Investors may be sending shares higher on speculation that a deal between Sarepta and Sanofi (SNY + $0.54 to $47.45) may be in the works. Concurrent with this announcement Sarepta also reported a smaller than expected Q1 loss ($0.60 vs. the $0.96 estimate) on better-than-expected revenue ($16.34M vs. $13.8M). Average implied volatility is down to 71% this morning from yesterday’s 86% closing level, but that appears to be slightly higher than the mid-60’s average seen over the prior two months. 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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