Today's Options Market Update

Stocks Mixed to Start the Week.

In late-morning action U.S. equities are trading mixed amid a blank economic calendar and as global sentiment remains a bit apprehensive, likely due to the current state of the geopolitical environment. Traders may be exercising some additional caution ahead of this week's Federal Reserve symposium in Jackson Hole, WY. Treasuries are mostly flat, gold is managing a slight advance and the U.S. dollar and crude oil prices are trading to the downside. In M&A action, Sempra Energy acquired Energy Future Holdings, which includes an 80% ownership stake in Oncor Electric Delivery. Overseas, stocks in Asia finished mixed and European shares are currently lower.     

At 10:57 a.m. ET, the Dow Jones Industrial Average and the S&P 500 Index are down 0.1%, while the NASDAQ Composite is decreasing 0.4%. WTI crude oil is declining $0.74 at $47.92 per barrel and Brent crude oil is dipping $1.11 to $51.61 per barrel, while wholesale gasoline is down $0.04 at $1.58 per gallon. The Bloomberg gold spot price is increasing $7.59 to $1,291.72 per ounce, and the Dollar Index—a comparison of the U.S. dollar to six major world currencies—is nudging 0.3% lower to 93.13.

Source: Schwab Center for Financial Research

Today’s Bullish Activity

Leading the point gainers list over on the NYSE is Herbalife Ltd. (HLF + $5.77 to $67.73) after the maker of nutritional supplements announced that it is seeking to buy back up to $600M of its common stock through a “modified Dutch auction”. The offer (going for $60.00-$68.00/share) provides some protection to tendering shareholders in the event that the company is taken private over the next 2 years for a higher price. Herbalife said it formally terminated going-private talks with prospective financial investors as of August 16th. Put volume is heavy (3:1 over calls) which is being led by activity on the September 15th 40.00 put (volume is 2,791 vs. open interest of 556).

Also trading to the upside is 58.com Inc. (WUBA + $5.15 to $58.41) after China’s largest online marketplace for classifieds reported Q2 earnings of $0.67 per share ($0.47 beat) on revenue of $382.8M (well above the $334.94M expected) as gross margins came in at 90.9% (vs. 91.8% in the year-ago period). Looking ahead the company said that it expects Q3 revenue of approximately CNY2.55-2.65B which is above the CNY2.38B consensus estimate. The stock is trading at the highest levels since April of 2016. Calls are outpacing puts better than 3:1 with the September 15th 60.00 call getting the most attention from traders (volume is 833 vs. open interest of 1,158).

New 52-week highs (46 new highs today): Kite Pharma Inc. (KITE + $1.20 to $131.38), Red Hat Inc. (RHT + $2.04 to $102.47), Weibo Corp. (WB + $0.91 to $90.59)

Notable Call Activity

Some unusual call activity (6:1 over puts) is being seen in Freeport McMoran Inc. (FCX + $0.60 to $14.76) as nine out of the top 10 most active contracts are calls. Option traders were primarily targeting the September 15th 15.00 call as volume is currently 8,614 versus open interest of 31,710. Contracts were exchanging hands for between $0.33 and $0.57 each with most of the contracts being bought at or near the ask price. FCX is trading higher this morning following news that its Eastern Indonesian copper mine is expected to reopen after being halted in January over permit and royalty disputes.

Today’s Bearish Activity  

Moving lower this morning is Dow-component Nike Inc. (NKE - $1.50 to $53.45) after Jeffries downgraded the maker of athletic apparel to “Hold” from “Buy” and lowered their price target to $60 from $75 on the stock. Jeffries analysts cite a lack of near-term catalysts and growing demand for Adidas brand as reason for the downgrade.  Puts are outnumbering calls 5:4 with the October 20th 52.50 put being the most actively traded contract (volume is 4,207 vs. open interest of 14,736).  

Also trading to the downside is Ulta Beauty Inc. (ULTA - $8.86 to $235.34) after Stifel lowered their price target on the stock to $270 from $325 on concerns of slowing growth within the U.S. beauty category. Stifel analyst Mark Astrachan stated, “Numerous data points suggest U.S. beauty category growth slowed in the second quarter, including from retailers Macy’s and Sephora, beauty companies L’Oreal and E.L.F. Beauty and scanner data measuring sales trends in food, drug, and mass channels”. The stock is trading at the lowest levels since last November and is scheduled to report Q3 earnings this Thursday after the market close. Calls are outnumbering puts 4:3 with the August 25th 235.00 call being the most actively traded contract (volume is currently 523 versus open interest of 46).

New 52-week lows (165 new lows today): Apache Corp. (APA - $0.77 to $39.54), Bed Bath & Beyond Inc. (BBBY - $0.02 to $27.25), 3D Systems Corp. (DDD - $0.31 to $12.12)

Notable Put Activity

Shares of American Eagle Outfitters Inc. (AEO - $0.49 to $10.62) hit a fresh two-year low earlier this morning and some unusual put activity is being seen on the September 15th 8.50 put. Volume on this contract is 28,646 versus open interest of 0 so we know that this is all new positioning. Nearly all of the volume transacted at $0.10, but it was a mix of buying at the ask price of $0.10 and selling at the bid of $.10 so it’s tough to discern the intent. The activity comes ahead of the company’s fiscal Q3 earnings report which is scheduled to be released before the market open on Wednesday (August 23rd).

Volume Signals

Some unusual block activity was being seen in SPDR Technology Select Sector ETF (XLK + $0.06 to $57.13) as a 10K block was bought on the September 15th 55.00 put for $0.48 and another block of the same size was simultaneously sold on the September 15th 50.00 put for $0.08. It appears that a bear put spread was established for a net debit of $0.40 (x 10K contracts x 100 multiplier, excluding commissions) and suggests that the block trader believes that XLK can drop below the break-even price of $54.60 at expiration.

Option volume is running at over four times the daily average on Tenet Healthcare Inc. (THC + $2.13 to $16.58) as the stock pushes up towards to 200-day SMA ($17.42) on news that hedge fund Camber Capital Management has taken in a 5.7% stake in the hospital operator. The activity is call biased (3:1 over puts) with the September 15th 16.00 call (volume is 1,555 vs. open interest of 134) and September 18.00 call (volume is 1,942 vs. open interest of 65) getting the most attention from traders.

Gauging Volatility

The CBOE Volatility Index (VIX - 1.11 to 13.15) is pulling back some this morning as equity markets attempt to stabilize from an early morning pullback. VIX options volume has been average at 317,296 contracts (#4 on the top 10 most actives list) and the activity has been call-biased (3:2 over puts). The most actively traded contract is the September 20th 14.00 put as volume is currently 29,462 (vs. open interest of 93,688).  

Shares of Baozun Inc. (BZUN - $0.48 to $33.50) are trading lower ahead of the company’s Q2 earnings announcement which is scheduled to be released after the market close today. Analysts are expecting the Chinese e-commerce branding company to report earnings of $0.10 on revenue of $130.68M. Today’s option volume has a bullish-bias (calls are outpacing puts 3:1) with the September 15th 35.00 call seeing the most action (volume is 1,035 vs. open interest of 2,297). Option traders appear to be expecting a relatively large post-earnings move as the current average implied volatility level of 89% represents a 52-week high. 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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