Today's Options Market Update

Stocks Off to a Volatile Start This Week.

Domestic stocks are extending last week's slide with a failed healthcare bill on Capitol Hill appearing to foster a relative uptick in volatility and concerns regarding President Donald Trump's tax reform ambitions. Treasury yields and the U.S. dollar are adding to recent drops, while gold is gaining ground and crude oil prices are continuing to fall. Equity and economic news is light, though Cal-Maine Foods missed and regional manufacturing growth slowed. Asia finished lower and European equities are seeing some pressure.  

At 10:50 a.m. ET, the Dow Jones Industrial Average is down 0.6%, the S&P 500 Index is decreasing 0.5%, and the NASDAQ Composite is declining 0.3%. WTI crude oil is falling $0.64 to $47.33 per barrel, Brent crude oil is dropping $0.49 to $50.43 per barrel, and wholesale gasoline is dipping $0.01 at $1.61 per gallon. The Bloomberg gold spot price is rising $11.55 to $1,255.13 per ounce, and the Dollar Index—a comparison of the U.S. dollar to six major world currencies—is trading 0.5% lower at 99.10.

Source: Schwab Center for Financial Research

Today’s Bullish Activity

Gapping up to a 52-week high is HCA Holdings Inc. (HCA + $4.05 to $90.09) after Mizuho Securities upgraded the stock to “Buy” from “Neutral”. HCA rallied 3% on Friday after House Republicans postponed a vote on a health care reform bill that is designed to replace the Affordable Care Act. Puts are slightly outnumbering calls with the June 16th 85.00 put getting the most attention from traders (volume is 511 vs. open interest of 1,105).

Mizuho Securities also upgraded Universal Health Services (UHS + $5.05 to $126.95) to “Buy” from “Neutral” and increased their price target to $138 from $133. Analyst Ann Hynes commented, “With the collapse of the proposed legislation, the AHCA, we think earnings visibility improves”. Today’s 4% rally puts the stock above its 200-day SMA of $121.98. Calls are outnumbering puts 2:1 with the May 19th 130.00 call leading the pack (volume is 21 vs. open interest of 11).

New 52-week highs (61 new highs today): Applied Optoelectronics Inc. (AAOI + $4.17 to $59.19),Cypress Semiconductor (CY + $0.21 to $14.67), Unilever PLC (UL + $0.23 to $50.40)

Notable Call Activity

Some unusual call activity (9:1 over puts) is being seen in AbbVie Inc. (ABBV + $0.47 to $66.09) which is primarily being driven by activity on two near-term contracts – the March 31st 67.00 call (volume is 5,132 vs. open interest of 117) and the March 31st 65.00 call (volume is 4,236 vs. open interest of 205). Since volume is well above open interest on both contracts we know that this activity primarily represents new positioning.  

Today’s Bearish Activity

Leading the percentage decliners list over on the NASDAQ is Foamix Pharmaceuticals Ltd.(FOMX - $3.90 to $5.20) after the Israeli drug developer said that its experimental acne drug failed to meet one of the two main goals in a Phase 3 study. The stock touched an all-time low of $4.40 near the open but has recovered some ground since then. Calls are outnumbering puts 4:1 with the April 21st 10.00 call being the most actively traded contract (volume is 401 vs. open interest of 6,302).

Also trading to the downside is Wage Works Inc. (WAGE - $5.25 to $69.25) after Wells Fargo downgraded the administrator of consumer-directed benefits to “Market Perform” from “Outperform”. The stock has dropped for six consecutive days and has lost 13% over that timeframe. Option volume is light (32 contracts traded) with the May 19th 65.00 put being the most active contract (volume is 10 vs. open interest of 1).

New 52-week lows (83 new lows today): Bed Bath & Beyond Inc. (BBBY - $0.03 to $38.26), First Solar Inc. (FSLR - $0.11 to $28.20), Macy’s Inc.  (M - $0.02 to $28.15)

Notable Put Activity

Shares of the SPDR S&P Regional Bank ETF (KRE - $0.71 to $52.36) touched the lowest levels since November (intraday low is $51.17) and it appears that some option traders are positioning for further downside. Puts are outnumbering calls better than 7:1 as all of the top 10 most active contracts are puts. The top two most actively traded contracts are the April 21st 52.00 put (volume is 6,944) and the May 19th 45.00 put (volume is 3,453).

Volume Signals

It appears that a fairly large bull call spread was established in ST Microelectronics NV(STM - $0.21 to $15.67) as a 5K block was bought in the July 21st 17.50 call for $0.65 and another block of the same size was simultaneously sold on the July 21st 20.00 call for $0.22 per contract. The bullish spread cost a net debit of $0.43 (x 5000 contracts x 100 multiplier, excluding commissions) to establish and has the potential to be worth up to $2.50 per contract in the event that STM closes above $20.00 at expiration.

SPDR Technology Select Sector ETF (XLK - $0.05 to $52.78): A 10.56K block was bought on the May 19th 49.00 put at the ask price of $0.25 which suggests bearish intent. Last week XLK dropped below its 20-day SMA for the first time this year and earlier this morning it touched a one-month low of $52.33.

Gauging Volatility

The CBOE Volatility Index (VIX + 0.22 to 13.18) hit a year-to-date high of 15.11 near the open this morning but has pulled back throughout the morning. VIX options volume has been on the heavy side at 495,698 contracts (#3 on the top 10 most actives list) and the activity has been call-biased (5:3 over puts). The bulk of the volume is going toward a three-way spread trade as a 47.5K block was sold on the April 19th 12.00 put for $0.17, another block of the same size was simultaneously sold on the April 19th 16.00 call for $1.02 and another block of the same size was simultaneously bought on the April 19th 18.00 call for $0.74. The three-way spread was established for a net credit of $0.45 (x 47.5K contracts, x 100 multiplier, excluding commissions) and suggests the block trader believes that the VIX will be between 12.00 and 16.00 at expiration.


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