Today's Options Market Update for October 11, 2019

Stocks Rally on Positive Trade Sentiment

U.S. stocks are rallying in afternoon action, as U.S.-China trade optimism is gaining steam after President Trump offered some positive comments regarding how talks have progressed ahead of his meeting today with Chinese Vice Premier Liu. As well, signs that the U.K. may be able to avoid a no-deal divorce from the European Union may also be adding to the positive sentiment to boost stocks. Treasury yields are markedly higher and the U. S. dollar is lower, with U.S. consumer sentiment unexpectedly rising to a three-month high, while crude oil prices are gaining ground, and gold is falling. News on the equity front is light and playing second fiddle to the global developments, with Fastenal rallying after topping earnings expectations, and Wendy's is gaining solid ground after offering an upbeat view of full-year global sales growth. Europe also finished broadly higher.

At 12:55 p.m. ET, the Dow Jones Industrial Average and S&P 500 Index are gaining 1.5%, while the Nasdaq Composite is advancing 1.7%. WTI crude oil is increasing $0.83 to $54.48 per barrel and Brent crude oil is trading $1.14 higher at $60.24 per barrel, and wholesale gasoline is ticking $0.02 to the upside at $1.64 per gallon. The Bloomberg gold spot price is dropping $9.34 at $1,484.65 per ounce, and the Dollar Index—a comparison of the U.S. dollar to six major world currencies—is falling 0.4% to 98.29. Natural gas prices have traded in a range of $2.26 to $2.19 and was last seen unchanged at $2.218/MMBtu

Source: Schwab Center for Financial Research

Today’s Bullish Activity

Some notable stocks trading to the upside are:

  • Roku Inc. (ROKU + $6.17 to $12.32): The streaming device maker is gapping up this morning as RBC changed its outlook on the company form “sector perform” to “outperform” and increased the price target from $107.00 to $155.00. RBC notes, “Roku’s fundamentals are better among mid –small cap companies, and the company has beaten profit, revenue expectations for eight straight quarters.” Furthermore, the “company is to benefit from streaming trends and should be able to generate material new AVOD (advertisement-based video on demand) and SVOD (subscription video on demand) revenue.” Calls are outnumber puts roughly 5:4 but the October 11th 120.00 put is the most actively traded contract (volume is 22,456).
  • Apple Inc. (AAPL + $5.00 to $235.10): Shares of Apple are trading at all-time highs as Wedbush increased the price target on the iPhone maker to $265.00 from $245.00. Wedbush believes Apple’s launch of video streaming service has “show stopping” price, providing an opportunity to gain 100 million subscribers to its streaming service in the next three to four years. Calls and puts are roughly equal with the October 11th 235.00 call topping the most active list (volume is 66,487).
  • Fastenal Co (FAST + $5.04 to $36.07): The Minnesota-based wholesale distributor of industrial and construction supplies is trading higher as the company reported higher Q3 earnings and in line revenue. Earnings for Q3 were $0.37 per share ($0.01 beat) on revenue that rose 7.8% year-over-year to $1.38B. As of this writing FAST has posted an intraday high of $36.51, which represents a new all-time high. Puts are outpacing calls at a ratio of 5:4. The most actively traded contract is the October 18th 35.00 put (volume is 4,392).

 

New 52-week highs (110 new highs today): Apple Inc. (AAPL + $5.27 to $235.36), Aaron’s Inc. (AAN + $5.35 to $68.34), Fastenal Company (FAST + $4.88 to $35.90), Target (TGT + $2.05 to $112.62), Deere & Company (DE + $3.55 to $171.35)

Notable Call Activity

Wendy’s Co. (WEN + $1.19 to $21.18) is seeing some unusual call activity (25:1 over puts), as nine of the top ten most actively traded contracts are calls with most of the attention going towards the October 18th 21.00 call. Volume on this contract is 19,511 (vs. open interest of 3,658). Of interest is a block trade of 3,766 contracts that were purchased at $0.25 when the bid/offer spread was $0.00 x $0.25, which suggests bullish intent.

Qualcomm Inc. (QCOM + $2.09 to $77.06) is also seeing some unusual call activity (4:1 over puts), as seven of the ten most actively traded contacts are calls. The November 15th 85.00 call is seeing heavy interest from traders, volume on this contract is 6,042 (vs. open interest of 4,991). Trading is active as numerous lots of 100 or more contracts have traded at various bid/offer prices. Given the volume is higher than open interest, it is likely new positions are being established.

Today’s Bearish Activity 

  • Crowdstrike Holdings Inc.  (CRWD - $2.92 to $58.49): The California-based provider of hacker-prevention software is trading to the downside as the company received multiple downgrades: Goldman downgrades from Neutral to Sell, Barclays from Equal Weight to Underweight, and Piper Jaffray from Overweight to Neutral. Heather Bellini, a Goldman Sachs analyst stated in a research note “while CrowdStrike is well-positioned in the market for endpoint security and can continue to post earnings to the upside of Wall Street forecasts, a "blue sky analysis" suggests this is already priced into the stock at current levels.” Calls are outpacing puts roughly 5:3 with the November 15th 65.00 put topping the most active list (volume is 532).

 

New 52-week lows (11 new lows today): Aurora Cannabis Inc. (ACB - $0.04 to $3.69), Canopy Growth Corp (CGC - $0.95 to $19.47), Hexo Corp (HEXO - $0.19 to $2.66), Sorrento Therapeutics (SRNE+ $0.08 to $6.39).

Notable Put Activity

Some unusual put activity (3:1 over calls) is being seen in Ebay Inc. (EBAY + $0.76 to $38.69) as six of the top ten most actively traded contracts are puts. The top two most actively traded options are the October 11th 38.50 put (volume is 2,705 vs. open interest of 3,308) and the October 18th 38.50 put (volume is 2,766 vs. open interest of 1,067). Most of the volume for these two contracts appears to be a rollout of a short put position:

  • 2,700 contracts of the October 11th 38.50 put were purchased at $0.08 when the bid offer spread was $0.07 x $0.10
  • Simultaneously, 2,700 contracts were sold of the October 18th 38.50 put at $0.37 when the bid/offer spread was $0.37 to N/A

We might conclude this is a rollout of a short put option where the trader closed a short Oct 11th 38.50 put and re-established a similar position for the October 18th expiration. We know the 38.50 put for October 18th is a new position based on the open interest figure and we can assume the block trader either believes EBAY will either remain at or above $38.50 (in which case the entire $78,000 premium, excluding commissions, would be retained) or is comfortable taking a long 270,000 share position in EBAY (at an effective purchase price of $38.21) in the event that EBAY closes below $38.50 at expiration.

SPDR Regional Banking ETF (KRE + $1.27 to 52.43) is seeing some notable put activity (7:1 over calls) as six of the most actively traded options are puts. The two most actively traded contracts are the November 15th 51.00 put (volume is 15,154 vs. open interest of 7,467) and the November 15th 46.00 put (volume is 15,037 vs. open interest of 9,697). Almost half of the trading in the two contracts is the following spread trade:

  • 51.00 Put – a 6,500 block was bought for $0.98 when the bid/ask spread was N/A x $0.97
  • 46.00 Put – a 6,500 block was sold for $0.13 when the bid/ask spread was $0.14 to $0.18

We know this represents new positioning based on the open interest figures. It appears that a $5.00 – wide bear puts spread was established for a net debit of $0.85 (x 6,500 contracts x 100 multiplier, excluding commissions) which suggests the block trader believes the stock will either close under the break-even price of $50.15 or under $46.00 to receive a max gain of $4.15 (x 6,500 contracts x 100 multiplier, excluding commissions) or $2,697,500.

Volume Signals     

SPDR S&P Bank ETF (KBE + $0.92 to $42.80): Option volume is running at over 31x the daily average of 100 contracts. The majority of the volume in KBE options today is in the December 20th 40.00 put - so far volume is 3,044 vs. open interest of 1,091. A block of 3,000 contracts was purchased at an average price of $0.77 when the bid/offer price was $0.65 x $0.80. We know this is a new position given the open interest figure, and we can assume the intent is bearish in nature since the trade took place at the ask price.

Cadence Design Systems Inc. (CDNS + $0.53 to $66.07): Option volume is running at over 54x the daily average of 113 contracts. The October 18th 60.00 put is attracting the most attention from traders today, volume is 6,548 vs. open interest of 1,681. Nearly a third of today’s trading (as of this writing) in the 60.00 put was a block of 2,500 contracts that was purchased at a price of $0.30 when the bid/offer spread was $0.00 x $0.50. We know this is a new position given the opens interest figure and we can assume the intent is bearish in nature since the trade took place at the ask price.

Gauging Volatility

The CBOE Volatility Index (VIX – 1.49 to 16.08) is sharply in negative territory, down nearly 20% from this week’s high of 20.28 on 10/08, as equities move higher across the board (DJI + 427, SPX + 48, COMPX + 150). VIX option volume is heavy today (currently #6 on the top 10 most actives list) and the activity has been put-biased (the volume put/call ratio is 1.44). The most actively traded contract is the October 16th 14.00 put with volume of 59,534 versus open interest of 105,800.

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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