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Today's Options Market Update

Bulls Look to Close out the Week on a High Note

U.S. stocks are higher for a sixth day, paring a large portion of a recent correction ahead of a holiday weekend. The markets continue to shrug off another hot inflation report, while Dow member Coca-Cola posted upbeat results, housing construction jumped and consumer sentiment surprisingly improved. Treasury yields are dipping after a rally and the U.S. dollar is posting a recently rare gain. Crude oil prices are mixed and gold is higher. Asia finished mixed in light volume amid the Lunar New Year holiday, while Europe is up on earnings and currency weakness.

At 10:53 a.m. ET, the Dow Jones Industrial Average is up 0.4%, while the S&P 500 Index and the NASDAQ Composite are gaining 0.3%. WTI crude oil is down $0.22 at $60.95 per barrel, Brent crude oil is trading $0.09 higher to $64.42 per barrel, and wholesale gasoline is flat at $1.73 per gallon. The Bloomberg gold spot price is advancing $1.52 at $1,355.19 per ounce, and the Dollar Index—a comparison of the U.S. dollar to six major world currencies—is rising 0.3% to 88.86.

Natural Gas has been in a relatively tight range today ($2.539-2.589) and was last seen trading lower by $0.008 (or -0.31%) to $2.572/MMBtu.

Source: Schwab Center for Financial Research

Today’s Bullish Activity

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

  • Coca Cola Company (KO + $0.74 to $45.52): the beverage company reported Q4 earnings of $0.39 per share ($0.01 beat) on revenue of $7.5B (above the $7.36B expected) as organic revenue increased 6% year-over-year; the company issued upside guidance as full-year 2018 EPS is expected to come in a range of $2.06-2.10 (versus the $1.99 consensus estimate) on ~4% growth in organic revenues; calls are outnumbering puts roughly 3:1 which is being led by activity on the February 16th 44.00 call (volume is 2,337 vs. open interest of 3,103).

  • Cray Inc. (CRAY + $1.15 to $25.30): the global supercomputer leader reported Q4 earnings of $0.22 per share (in-line with estimates) on revenue of $166.6M (above the $164.03M expected); the company issued in-line guidance as Q1 revenue is expected to be $50M (vs. the $50M expected) with full-year 2018 revenue expected to come in a range of approximately $431-450M (versus the $440.31M consensus estimate); option volume is light with the February 16th 25.00 call being the most actively traded contract (volume is 51 vs. open interest of 94).

  • Iron Mountain Inc. (IRM + $1.56 to $35.28): the storage and information management services company said that Q4 funds from operations were $0.53 per share ($0.05 miss) on revenue of $991M (above the $964.15M expected); looking ahead, the company said (on a constant currency basis) it expects full-year 2018 EPS to come in a range of $1.00-1.20 on revenue of $4.16-4.26B versus the respective $1.35 and $3.97B consensus estimates; calls are outnumbering puts roughly 4:1 with the March 16th 35.00 call getting the most attention from traders (volume is 326 vs. open interest of 680).

New 52-week highs (64 new highs today): Bristol-Myers Squibb Company (BMY + $0.08 to $69.06), Estee Lauder Companies (EL + $1.23 to $140.86), GrubHub Inc. (GRUB + $1.52 to $95.92), Nike Inc. (NKE + $0.52 to $68.81)

Notable Call Activity

Some unusual call activity (16:1 over puts) is being seen in Blue Apron Holdings Inc. (APRN + $0.28 to $3.59) which is primarily being driven by activity on the March 16th 4.00 call. Volume on this contract is 8,150 versus open interest of 506, so we know that this primarily represents new positioning. Most of the transactions on this contract consisted of buying at or near the ask price, including two 1,500 blocks that were bought for $0.14 and a 1,140 block that was bought at the ask price of $0.15 (suggesting bullish intent).

Also seeing some heavy call activity (11:1 over puts) is Andeavor (ANDV - $1.65 to $97.42) as option traders target the March 16th 97.50 call. Volume on this contract is 5,128 (vs. open interest of 1,319) which primarily consisted of various mid-sized blocks (928, 897, 872 and 861) that were bought for between $2.00 and $2.12 each (suggesting bullish intent).

Today’s Bearish Activity

Below are some higher profile names trading lower following disappointing quarterly earnings results/guidance:

  • Arista Networks Inc. (ANET - $48.66 to $259.30): the software-driven cloud networking solutions for large data center and computing environments provider reported Q4 earnings of $1.71 per share ($0.29 beat) on revenue of $467.9M (above the $463.82M expected) as non-GAAP gross margins were 65.9% versus 64.4% in the prior quarter; the company issued upside guidance as Q1 revenue is expected to be ~$468M versus the $457.80M consensus estimate with non-GAAP gross margins coming in the range of 63-65%; calls and puts are trading roughly even with the February 16th 250.00 put getting the most attention from traders (volume is 1,113 vs. open interest of 1,179).

  • Campbell Soup Co. (CPB - $1.73 to $45.97): the food maker reported fiscal Q2 earnings of $1.00 per share ($0.19 beat) on revenue of $2.18B (above the $2.16B expected) as organic sales declined 2% year-over-year; the company said that the drop in organic sales was due to Walmart placing fewer orders for its canned soups; the company raised full-year 2018 EPS to a range of $3.10-3.17 from $2.95-3.02 and revenue to come in a range of $7.81-7.97B versus the respective $2.98 and $7.87B consensus estimates; put volume is dominating (nearly 4:1 over calls) which is mostly due to activity on the February 16th 45.00 put (volume is 1,666 vs. open interest of 7,036).

  • Shake Shack Inc. (SHAK - $3.25 to $37.96): the fast-food chain reported Q4 earnings of $0.10 per share ($0.04 beat) on revenue of $96.14M (above the $92.8M expected) as “Same-Shak” sales increased 0.8%; the company issued downside guidance as full-year 2018 revenue is expected to come in a range of $444-448M versus the respective $458.96M consensus estimate with “Same-Shak” sales expected to be flat; the stock hit a two-month low of $37.30 earlier in the morning; calls are outnumbering puts nearly 5:3 with the March 16th 40.00 call leading the most actives list (volume is 603 vs. open interest of 736).

New 52-week lows (11 new lows today): Dominion Midstream Partners LP (DM - $1.70 to $25.60), Kraft Heinz Co. (KHC - $3.50 to $69.21), Oaktree Capital Group LLC (OAK - $0.15 to $42.20)

Notable Put Activity

Some unusual put activity (46:1 over calls) is being seen in Fifth Third Bancorp (FITB + $0.03 to $33.24) which is being led by some spread activity on the March 16th expiration. The following block trades were observed earlier this morning:

  • A 3,000 block was sold on the 29.00 put for $0.05 (open interest is 3,069) and another block of the same size was bought on the 31.00 put for $0.26 (open interest is 578).

  • Separately, a 1,245 block was sold on the 30.00 put for $0.12 (open interest is 2,100) and another block of the same size was bought on the 32.00 put for $0.44 (open interest is 1,620).

Based on the open interest data it appears that a couple of previously held blocks (3,000 & 1,245) were rolled up from the 29.00 & 30.00 strikes to the 31.00 & 32.00 strikes (respectively) which would suggest that the block trader(s) is/are still bearish on FITB.

Volume Signals

Multiple blocks were seen trading in Amicus Therapeutics Inc. (FOLD - $0.68 to $15.15) as the following three blocks simultaneously traded on the April 20th and June 15th expiration earlier this morning:

  • A 15K block was sold on the April 20th 17.00 call for $1.15 (open interest is 24,716)

  • A 15K block was bought on the June 15th 17.00 call for $2.45 (open interest is 14,363)

  • A 15K block was sold on the June 15th 24.00 call for an average price of $0.33 (open interest is 8,522)

Based on the open interest data it appears that a previously held 15K position was rolled out (from the April to the June expiration) and converted into a bull call spread (by simultaneously selling the 24.00 calls against the 17.00 calls).

A couple of blocks were seen trading in ILG Inc. (ILG + $0.06 to $31.70) as a 10K block was bought on the March 16th 33.00 call for $1.00 (open interest is 2,046) while another block of the same size was simultaneously sold on the March 16th 37.00 call for $0.20 (open interest is 3). It appears that a bull call spread was established for a net debit of $0.80 (x 10K contracts x 100 multiplier, excluding commissions) and suggests that the block trader believes that ILG will close above the break-even price of $33.80 at expiration.

Gauging Volatility

The CBOE Volatility Index (VIX + 1.43 to 19.62) was in negative territory near the open this morning but has moved into positive territory as equity markets have pulled back from the morning highs (DJI + 78 to 24,972, SPX + 11 to 2,709, COMPX + 51 to 7,195). VIX options volume has been average at 319,175 (#6 on the most actives list) and the activity has been slightly call-biased. The most actively traded contract is the July 18th 14.00 put as volume is 30,000 versus open interest of 9,836.

Shares of Riot Blockchain Inc. (RIOT - $4.95 to $12.24) are under pressure this morning which appears to be related to an investigative CNBC story that raised a number of red flags about the company’s history and recent insider transactions. The company, formerly known as Bioptix Inc., changed its name in October of last year and said that it intends to focus on cryptocurrencies and block chain technology. Today’s option volume is put-biased (3:1 over calls) with the March 16th 10.00 put seeing the most action from traders (volume is 2,869 vs. open interest of 3,979). Average implied volatility is seeing a significant spike as the current level of 194% is roughly 50% higher than yesterday’s 126% closing level. 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.

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.

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