Today's Options Market Update

Early Gains Fizzle Along with Crude Oil

Early gains for U.S. stocks have been pared and the markets are mixed, with broad gains in Europe and a modest advance in Asia being met with a disappointing domestic durable goods orders report and pressure persisting on crude oil prices. Treasury yields and the U.S. dollar are lower as political and economic uncertainties linger. Gold is losing ground. Nestle is getting a boost from Third Point's disclosed $3.5 billion stake and Avis Budget is jumping on a self-driving car management agreement with Google parent Alphabet.

At 10:51 a.m. ET, the Dow Jones Industrial Average and the S&P 500 Index are ticking 0.1% higher, while the Nasdaq Composite is dipping 0.1%. WTI crude oil is down $0.21 at $42.80 per barrel, Brent crude oil is declining $0.35 at $45.19 per barrel, and wholesale gasoline is off $0.02 at $1.41 per gallon. The Bloomberg gold spot price is decreasing $12.10 to $1,244.60 per ounce, and the Dollar Index—a comparison of the U.S. dollar to six major world currencies—is dipping 0.1% to 97.21.

Source: Schwab Center for Financial Research

Today’s Bullish Activity

One of today’s top gainers is Avis Budget Group (CAR $27) +$3.46 (+14.5%) on news that Waymo, the self-driving car unit of Alphabet Inc. (GOOGL $984) announced an agreement with CAR that involves CAR managing Waymo’s fleet of autonomous vehicles. Waymo will own the vehicles, but pay CAR (which also owns Zipcar) to service them; financial terms were not disclosed. At the moment the deal is limited to the city of Phoenix, where Waymo is testing a ride-hailing service. Equity volume on CAR was 50% above average after only two hours of trading and options activity was significantly more bullish than usual with a volume put/call ratio of .79 compared to an open interest put/call ratio of 4.83. While option activity was split about 50/50 between calls and puts, the 2 most active contracts were the 26 and 30 strike calls expiring on 7/21/17. Shares of CAR have struggled recently, falling more than 40% since mid-February; shares of GOOGL, which have risen about 17% during the same period of time, were little changed today on the news.

Also higher today are shares of Children’s Place (PLCE $102) +$5.30 (+5.5%) after the children’s wear retailer was upgraded by Telsey Advisory Group from Market Perform to Outperform, and given a price target of $135. Telsey cited inventory management, store closures of key competitor Gymboree, and a beneficial relationship with Amazon as factors supporting the upgrade. The volume put/call ratio of .37 was more bullish than the open interest put/call ratio of .46 and 7 of the top 10 most actively traded contracts were calls.

New 52-week highs on high volume

PTLA    $59.70             +6.5%  

BA        $203.52           +0.6%

Notable Call Activity

A medium sized block trade of 1500 contracts was executed this morning on Advanced Micro Devices (AMD $14) involving the 06/30/2017 14.50 calls at the ask price of $0.40. Since the open interest on this contract exceeds 10k contacts and it expires in 5 days, it is difficult to know if this was a closing or opening transaction.

Three sizable short straddle trades were seen on the iShares MSCI EAFE ETF (EFA $65) today as follows:

Sell 7500 EFA 07/21/2017 68 Calls @ .01

Sell 7500 EFA 07/21/2017 68 Puts @ 2.41

 

Sell 5000 EFA 07/21/2017 68 Calls @ .02

Sell 5000 EFA 07/21/2017 68 Puts @ 2.42

 

Sell 5000 EFA 07/21/2017 68 Calls @ .03

Sell 5000 EFA 07/21/2017 68 Puts @ 2.43

Since these block trades exceed the open interest on both sides, we can determine that these were opening trades. These straddles would hit maximum profit if EFA is at exactly 68 at expiration and all contracts expire worthless. Since the price of EFA was about $2.50 below this level when these trades executed, it is likely that the trader is expecting EFA to increase to around 68 but not much further, by expiration.

Today’s Bearish Activity

One of the biggest decliners of the day is Arconic (ARNC $23) -$2.18 (-8.5%) after a news story broke that the specialty metals producer was the supplier of the combustible cladding used on the Grenfell Tower in London, which caught fire on June 14 resulting in 79 deaths. Apparently the panels were identified as a fire risk for tall buildings back in 2014, but ARNC said it was not their responsibility to decide whether they were compliant or not with local building codes. Equity volume on ARNC was close to a full day’s volume after only the first hour of trading and the volume put/call ratio of .98 is more bearish than the open interest put/call ratio of .51. Six of the top 10 most active contracts were puts, mostly expiring in July and next January.

Also trading to the downside is Seattle Genetics (SGEN $55) -$6.78 (-11.0%) after the biotechnology company said it has halted a late-stage study of its leukemia drug Vadastuximab Talarine for older patients, due to a “higher rate” of death in patients on the drug compared to those on the placebo. Equity volume on SGEN was about double the normal rate after only an hour of trading and the volume put/call ratio of 2.80 is more bearish than the open interest put/call ratio of 1.21. The top 3 most active option contracts were all puts with strike prices of 50 and 55.

New 52-week lows on high volume

BBBY   $29.45              -0.7%

DRYS   $2.30                -5.7%

Notable Put Activity

There were no notable put transactions at the time of this writing other than the EFA straddles discussed in the Notable Call Activity section detailed above.

Volume Signals

After 3 hours of trading, the list of notable equity block trades includes the following:

1.3M shares of LPX      @ 24.17

1.4M shares of JNPR    @ 28.30

1.1M shares of DLTR    @ 67.00

1.2M shares of T           @ 37.95           

With over 12k contracts traded, overall option volume on Avis Budget Group (CAR $27) is about 5x normal today, due to the Waymo deal discussed above.  

Gauging Volatility

In late-morning activity, the CBOE Volatility Index ($VIX 10.11) is up just fractionally. Total VIX options volume is relatively light at just 180k contracts, and the VIX is number 4 on the top 10 most actively traded names. At .33, the volume put/call ratio is pretty close to the open interest put/call ratio of .25.

After peaking about 12 points above last Friday’s close, the S&P 500 Index($SPX 2441) is still up about 4 points in late-morning activity. SPX option volume is only 270k contracts but it #2 among the most active names. At 2.08, the volume put/call ratio is very close to the open interest put/call ratio of 2.03.

    

 

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