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Today's Options Market Update for February 22, 2019

Equities Moving Higher with Mixed Earnings

U.S. stocks are higher to end the week a few days prior to the expiration of a U.S./China trade deadline, while the economic calendar is quiet. Ahead of next week's retail earnings, Hewlett Packard Enterprise offered upbeat quarterly reports, while Kraft Heinz is seeing pressure after its earnings announcement. Treasury yields are paring gains that followed Wednesday's Fed minutes and the U.S. dollar is dipping. Crude oil prices are higher despite yesterday's fifth-straight weekly rise in inventories and gold is moving upward. Asia finished mostly higher and Europe is trading to the upside.

At 11:07 a.m. ET, the Dow Jones Industrial Average and the NASDAQ Composite are up 0.6%, while the S&P 500 Index is increasing 0.5%. WTI crude oil is rising $0.49 to $57.45 per barrel, Brent crude oil is gaining $0.08 at $67.15 per barrel, and wholesale gasoline is off flat at $1.77 per gallon. The Bloomberg gold spot price is trading $5.91 higher to $1,329.53 per ounce, and the Dollar Index—a comparison of the U.S. dollar to six major world currencies—is ticking 0.1% lower to 96.52. Natural Gas prices have traded in a relatively tight range of $2.68-2.72 and was last seen trading unchanged at $2.70/MMBtu.

Source: Schwab Center for Financial Research

Today’s Bullish Activity

Multiple stocks are moving higher this morning in reaction to quarterly earnings results:

  • iQIYI Inc. (IQ + $4.19 to $26.95): The Chinese video-streaming company reported a Q4 loss of RMB 4.83 per share (RMB 0.04 miss) on revenue of RMB 7B (above the RMB 6.66B expected) as total subscribing members increased from 50.8M to 87.4M year-over-year. Membership services revenue increased 76% year-over-year to RMB 3.2B. IQ is trading above its 200-day Simple Moving Average (currently $24.95) this morning. Calls are outnumbering puts roughly 3:1 with the February 22nd 25.00 call seeing the most action from traders (volume is 4,347). If you read Wednesday’s blog you might recall that IQ was highlighted under the “Notable Call Activity” section for activity on the February 22nd 25.00 call and April 18th 25.00 call.   
  • Roku Inc. (ROKU + $7.87 to $59.35): The streaming media device maker reported Q4 earnings of $0.05 per share ($0.01 beat) on revenue of $275.7M (above the $262.03M expected). Active accounts increased 40% to 27.1M, streaming hours increased 69% to 7.3B and Average Revenue per User increased 30% to $17.95 (all year-over-year). Looking ahead, the company said that Q1 revenue is expected to come in a range of $185-190M (vs. the $188.75M est.) while 2019 revenue is expected to come in a range of $1.00-1.025B (above the $981.67M expected). Calls are outnumbering puts roughly 2:1 but the March 15th 55.00 put isthe most actively traded contract (volume is 4,274).
  • The Trade Desk Inc. (TTD + $41.05 to $191.54): The advertising technology company reported Q4 earnings of $1.09 per share ($0.30 beat) on revenue of $160.5M (above the $147.83M expected). Gross spend on the company’s platform increased 51% to $2.35B year-over-year. Looking ahead, Q1 revenue is expected to be $116M (above the $114.2M expected) while full-year 2019 revenue is expected to be $637M (above the $616.93M consensus estimate). TTD is trading at all-time highs following the results. Calls and puts are trading roughly even with the March 15th 150.00 put being the most actively traded contract (volume is 1,470).
  • Wayfair Inc. (W + $34.34 to $151.62): The online home furnishing company reported a Q4 loss of $1.12 per share ($0.18 beat) on revenue of $2.01B (above the $1.97B expected) as Direct Retail net revenue increased $576.6M (or +40.6%) to $1,995.8M year-over-year. the per-unit fleet costs declined 7% for both the quarter and the year. W hit a fresh all-time high of $152.30 earlier in the trading session. Puts are outnumbering calls roughly 3:2 which is primarily being driven by activity on the March 15th 140.00 put (volume is 2,338).

 

New 52-week highs (149 new highs today): Acacia Communications Inc. (ACIA + $8.12 to $55.29), Boeing Company (BA + $5.42 to $423.00), Cisco Systems Inc. (CSCO + $0.67 to $50.08), Eli Lilly & Co. (LLY + $1.53 to $124.25)

Notable Call Activity

Shares of mailing and shipping company Pitney Bowes Inc. (PBI + $1.23 to $8.26) appear to be benefitting from STMP’s partnership termination with the U.S. Postal Service (USPS) and the bulls appear to be taking note. Calls are outpacing puts roughly 50:1 and all of the top 10 most actively traded PBI contracts today are calls. Option traders were primarily targeting the March 15th 8.00 call as volume is 6,443 versus open interest of only 143. The majority of the transactions on this contract consisted of various small to mid-sized blocks that were being bought at the ask price of $0.20, which suggests bullish intent. Shares of PBI are trading above the 200-day Simple Moving Average (currently $7.80) for the first time in over a year.

Today’s Bearish Activity 

Here are some stocks trading to the downside following quarterly earnings results:

  • Dropbox Inc. (DBX - $2.32 to $23.27): The file sharing and storage company reported Q4 earnings of $0.10 per share, excluding non-recurring items, ($0.02 beat) on revenue of $375.9M (above the $370M expected) as operating margins improved to 11.0% (vs. prior guidance of 9-10% and 3.3% in the year-ago period). However, the company said that it expects its Q1 operating margin to drop to 7-8%, compared to 10.9% in the year-ago quarter. Puts are outnumbering calls roughly 4:3 with the April 18th 19.00 put being the most actively traded contract (volume is 3,622).
  • Kraft Heinz Co. (KHC - $13.34 to $34.84): The food company reported Q4 adjusted earnings of $0.84 per share (in-line with estimates) on revenue of $6.89B (below the $6.93B expected) as pricing declined 1.6% year-over-year. Concurrent with the announcement the company said that it received a subpoena from the U.S. Securities and Exchange Commission back in October of 2018 regarding the company’s accounting policies, procedures and internal controls related to its procurement area. KHC is trading at an all-time low this morning and average implied volatility is up to 35% from yesterday’s 27% closing level. Calls are slightly outnumbering puts but the March 15th 35.00 put is leading the way (volume is 12,584). 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.       
  • Stamps.com Inc. (STMP - $111.11 to 87.97): The online shipping and postage company reported Q4 earnings of $3.73 per share ($0.83 beat) on revenue of $170.23M (above the $160M expected). The company issued downside guidance as full-year 2019 EPS is expected to come in a range of $5.15-6.15 on revenue of $540-570M versus the respective $10.79 and $689.1M consensus estimates. Additionally, the company said that it is ending its long-standing exclusive partnership with USPS and will adopt a multi-carrier strategy. Calls are outnumbering puts but the February 22nd 80.00 put is the most actively traded contract (volume is 2,166).

 

New 52-week lows (26 new lows today): Barnes Group (B - $0.19 to $60.97), Macy’s Inc. (M - $0.40 to $24.05), Urban Outfitters Inc. (URBN + $0.06 to $30.08)

Notable Put Activity

Some unusual put activity (nearly 3:1 over calls) is being seen in Xerox Corp. (XRX - $0.02 to $31.77) which is mostly due to a couple of large blocks that traded out on the April 18th expiration:

 

  • A 5K block was bought on the 27.00 put for $0.35 when the bid/ask spread was $0.24 x $0.42 (open interest is 766)
  • A 5K block was simultaneously sold on the 24.00 put for $0.10 (open interest is 766)

 

We know these are new positions based on the open interest figures and it appears that a bear put spread was established for a net debit of $0.25 (x 5K contracts x 100 multiplier, excluding commissions) which suggests that the block trader feels that XRX will close below the break-even price of $26.75 at expiration.

Volume Signals     

News Corp. (NWSA + $0.24 to $13.04): The 4th most actively traded contract across the board today is the NWSA 4/18/2019 13.00 P. Volume on this contract is 72,110 (vs. open interest of 7) which mostly consisted of two large blocks (~64K and ~7K) that were sold for $0.48, which suggests that the block tarder(s) believe that NWSA will close above the $13.00 price level and/or are comfortable taking a long stock position in NWSA in the event that it closes below that price level.  

LyondellBasell Industries N.V. (LYB + $0.88 to $89.38): Option volume is running at over 8x the daily average of 1,296 contracts on this chemical company which is primarily due to activity on the April 18th 95.00 call. Volume on this contract is 4,418 versus open interest of 85, so it’s likely that this is all new positioning. The bulk of the volume on this contract is being attributed to a 3,150 block that was bought at the ask price of $0.90 which suggests bullish intent.

Yandex N.V. (YNDX + $1.38 to $33.17): Option volume is running at nearly 5x the daily average of 1,729 contracts which is primarily due to a couple of fairly large blocks that traded out on the May 17th expiration:

 

  • A 2,500 block was bought on the 36.00 call for $1.25 when the bid/ask spread was $1.05 x $1.30 (open interest is 750)
  • A 2,500 block was simultaneously bought on the 31.00 put for $1.58 when the bid/ask spread was $1.40 x $1.65 (open interest is 192)

 

We know these are new positions based on the open interest figures and it appears that a long strangle was established for a net debit of $2.83 (x 2,500 contracts x 100 multiplier, excluding commissions) which suggests that the block trader believes that YNDX will close above the upper break-even price of $38.83 or below the lower break-even price of $28.17 at expiration.

Gauging Volatility

The CBOE Volatility Index (VIX - 0.50 to 13.96) is dropping to a fresh four-month low as equity markets remain firmly in positive territory around the mid-day mark today (DJI + 179, SPX + 16, COMPX + 58). VIX option volume has been on the heavy side today at 416,063 contracts (#3 on the top 10 most actives list) and the activity has been decidedly call-biased (the volume put/call ratio is 0.09). The most actively traded contract is the March 19th 23.00 call as volume is 93,154 versus open interest of 86,355.

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.

Looking to the Futures - February 22, 2019
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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. This material includes information obtained from third-party sources and believed to be reliable, but its accuracy or completeness is not guaranteed.

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. Past performance is no guarantee of future results.
Futures trading carries a high level of risk and is not suitable for all investors. Past performance is no guarantee of future results.

(0219-9YEU)

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