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Today's Options Market Update

Stocks Higher to Close out Volatile Week

U.S. stocks are mixed, with technology issues weighing on the NASDAQ, exacerbated by lingering global trade concerns and a disappointing outlook from Red Hat, while energy stocks are rallying along with crude oil prices amid reports OPEC reached a production decision. Treasury yields have given up early gains and the U.S. dollar is trimming a recent run, while Markit's business activity reports declined but continued to show expansion. Gold is higher. Asia finished mixed and Europe is trading mostly higher.

At 10:56 a.m. ET, the Dow Jones Industrial Average is up 0.5% and the S&P 500 Index is increasing 0.3%, while the NASDAQ Composite is declining 0.4%. WTI crude oil is rallying $2.37 at $67.91 per barrel, Brent crude oil is $1.47 higher at $74.52 per barrel, and wholesale gasoline is gaining $0.04 at $2.04 per gallon. The Bloomberg gold spot price is rising $3.24 to $1,270.43 per ounce, and the Dollar Index—a comparison of the U.S. dollar to six major world currencies—is dipping 0.1% to 94.75. Natural Gas has traded in a fairly tight range of $2.94-2.99 and was last seen trading lower by $0.03 (or -0.87%) to $2.95/MMBtu).

Source: Schwab Center for Financial Research

Today’s Bullish Activity

Joining the 52-week high club this morning is CarMax Inc. (KMX + $7.97 to $79.02) after the used car dealer reported Q1 earnings of $1.33 ($0.09 beat) on revenue of $4.79B (above the $4.6B expected) as comparable store used unit sales decreased 2.3% (better than the -4.0% expected). The company sold 113,335 wholesale vehicles during the quarter which represents a 9.6% increase versus the year-ago quarter. Calls are outnumbering puts nearly 2:1 with the June 22nd 77.00 call leading the most actives list (volume is 434 vs. open interest of 164).

Multiple stocks are moving higher on analyst upgrades:

  • Dollar General Corp. (DG + $1.25 to $99.93): Raymond James upgraded the discount retailer to “Strong Buy” from “Outperform” and put a $115.00 price target on the stock; calls are outnumbering puts roughly 3:2 with the June 22nd 101.00 call leading the most actives list (volume is 52 vs. open interest of 20).
  • Molina Healthcare Inc. (MOH + $3.93 to $102.61): Jefferies upgraded the health insurer to “Buy” from “Hold”; Jefferies analyst David Windley said the $500M cost savings isn’t Herculean and called Molina’s turnaround plan “value-enhancing”, stating that it could be executed by a rookie quarterback; calls are outnumbering puts 25:1 with the July 20th 105.00 call topping the most actives list (volume is 316 vs. open interest of 130).
  • United Rentals Inc. (URI + $4.83 to $158.01): UBS upgraded the equipment rental company to “Buy” from “Neutral” citing valuation and strength in end markets; calls are outnumbering puts nearly 3:1 with the June 22nd 160.00 call topping the most actives list (volume is 572 vs. open interest of 104).

New 52-week highs (101 new highs today): Anadarko Petroleum Corp. (APC + $4.50 to $73.96), Chipotle Mexican Grill Inc. (CMG + $6.83 to $469.99), Murphy Oil Corp. (MUR + $0.69 to $34.85), Public Storage Inc. (PSA + $1.95 to $223.79)

Notable Call Activity

Shares of Cleveland-Cliffs Inc. (CLF + $0.48 to $9.08) are trading at a five-month high this morning and it appears that some option traders are expecting additional upside in the near-term. Calls are outnumbering puts 4:1 which is being led by activity on the July 6th 9.00 call. Volume on this call is 3,448 versus open interest of 659, so we know that this primarily represents new positioning. The bulk of the transactions on this contract consisted of various mid-sized blocks (231, 166, 160, 102, etc.) that were being bought at the ask price of $0.38, which suggests bullish intent. 

Today’s Bearish Activity  

Leading the point decliners list over on the NYSE is Red Hat Inc. (RHT - $21.00 to $144.73) after the Linux operating system distributor beat quarterly estimates but provided disappointing guidance last night after the market close. First quarter earnings were $0.72 ($0.04 beat) on revenue of $813.53M (above the $807.48M expected) but Q1 billings came in at $709M (below the ~$725M estimate) and the company said that Q2 EPS is expected to be approximately $0.81 on revenue of $822-830M which is below the respective $0.89 and $854.74M consensus estimates. Concurrent with the release, Red Hat authorized a new $1B share repurchase program which will replace the existing program which is scheduled to expire on June 30th. Calls are slightly outnumbering puts but the June 22nd 150.00 put is getting the most attention from traders (volume is 1,479 vs. open interest of 1,350).  

Also trading to the downside is BlackBerry Ltd. (BB - $1.13 to $10.57) after the Canadian software maker reported Q1 earnings of $0.03 ($0.03 beat) on revenue of $211M (above the $217M expected). In term of guidance, the company reaffirmed that total company software and services billings growth is expected to be “double-digits” with total non-GAAP EPS and free cash flow expected to be positive for the full-year. The stock opened in the green but has encountered selling pressure since then. Calls are outnumbering puts better than 2:1 with the June 29th 12.00 call topping the most actives list (volume is 2,209 vs. open interest of 5,990).

New 52-week lows (20 new lows today): Changyou.com Ltd. (CYOU - $0.23 to $16.75), H&R Block Inc. (HRB - $0.22 to $23.26), Philippine Long Distance Telephone Inc. (PHI - $0.23 to $21.70)

Notable Put Activity

Some unusual put activity (16:1 over calls) is being seen in Temper Sealy International Inc. (TPX + $0.02 to $52.64) which is being driven by some block activity on the August 17th expiration – a 1,000 block was bought on the 50.00 put for $2.80 and another block of the same size was simultaneously sold on the 42.50 put for $0.62. It appears that a bear put spread was established for a net debit of $2.18 (x 1,000 contacts x 100 multiplier, excluding commissions) which would suggest that the block trader believes that TPX will close below the break-even price of $47.82 at expiration. TPX is expected to report Q2 earnings before the market open on July 26th so this spread captures the potential impact of this event.   

Volume Signals     

Technipfmc Ltd. (FTI + $1.88 to $32.64): option volume is running at over 8x the daily average of 785 contracts which is primarily being driven by activity on the July 20th 33.00 call. Volume on this contract is 4,049 (vs. open interest of 10,116) which included a 1,757 block that was sold on the $0.92 and two 1,000 block that were bought at the ask price of $1.00.

PG&E Corp. (PCG + $1.47 to $42.00): option volume is running at over 5x the daily average which is primarily being driven by activity on the July 20th 43.00 call. Volume on this contract is 5,850 versus open interest of 1,034, so we know that this primarily represents new positioning. The activity on this contact mostly consisted of three large blocks (1,188, 1,188, 1,227) that were bought for $1.90 when the bid/ask spread was $1.75 x $1.95 (which suggests bullish intent).

Lastly, multiple blocks were seen simultaneously trading in Arconic Inc. (ARNC + $0.18 to $17.14) on the January 2019 expiration earlier this morning:

  • A 5,250 block was bought on the 17.50 call for $1.55 (open interest is 589)
  • A 5,250 block was sold on the 21.00 call for $0.48 (open interest is 291)
  • A 5,250 block was sold on the 16.00 put for $1.12 (open interest is 243)

We know these are new positions given the open interest data and it appears that a (bullish) risk reversal call spread was established for a net credit of $0.05 (x 5,250 contracts x 100 multiplier excluding commissions) which will achieve the maximum gain if ARNC closes at or above $21.00 at expiration. 

Gauging Volatility

The CBOE Volatility Index (VIX - 1.26 to 13.38) is giving back much of yesterday’s 14% gain as equity markets are mixed around the mid-day mark today (DJI + 170, SPX +12, COMPX -6). VIX option volume has been tepid today (currently missing from the top 10 most actives list) and the activity has been call-biased (11:1 over puts). The most actively traded contract is the July 18th 19.00 call as volume is 15,016 vs. open interest of 95,787.

Interested in receiving notifications of intraday unusual option trades? Follow Schwab’s Vice President of Trading & Derivatives Randy Frederick on Twitter @RandyAFrederick who will be tweeting unusual options trades as he sees them throughout the day.

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All references to subjects (securities, indexes, futures contracts, and options contracts) were derived based on screens conducted by the writer for certain anomalous activity such as volumes, volatility and other related market data. As needed for brevity, the writer may have applied discretion when choosing among screen outputs for inclusion. Such discretion may have been based on news reports or other considerations of public interest. The views or opinions are those of the writer, and are subject to change without notice. All referenced subjects were chosen for illustrative purposes only and should not be considered recommendations, offers to sell, or solicitations of offers to purchase.

All corporate names and market data shown above are for illustrative purposes only and are not a recommendation, offer to sell, or a solicitation of an offer to buy any security.
All references to subjects (securities, indexes, futures contracts, and options contracts) were derived based on screens conducted by the writer for certain anomalous activity such as volumes, volatility and other related market data. As needed for brevity, the writer may have applied discretion when choosing among screen outputs for inclusion. Such discretion may have been based on news reports or other considerations of public interest. The views or opinions are those of the writer, and are subject to change without notice. All referenced subjects were chosen for illustrative purposes only and should not be considered recommendations, offers to sell, or solicitations of offers to purchase.
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