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Today's Options Market Update for December 10, 2018

Stocks Continue to Sell Off as Uncertainty Remains High

U.S. stocks are extending last week's drop to back near correction territory, with Asia declining broadly and Europe seeing pressure. Global growth concerns are being amplified by disappointing economic data out of China and Japan, while Brexit uncertainty is festering after U.K. Prime Minister Theresa May called off a key vote that was scheduled for tomorrow. Treasury yields are little changed and the U.S. dollar is higher as the British pound is falling. The moves come ahead of next week's Fed monetary policy decision, which has turned uncertain amid the recent volatility in the global markets. Crude oil prices and gold are lower.   

At 10:53 a.m. ET, the Dow Jones Industrial Average is falling 1.2%, the S&P 500 Index is dropping 1.0%, and the Nasdaq Composite is down 0.4%. WTI crude oil is decreasing $0.69 to $51.92 per barrel, Brent crude oil is trading $0.45 lower at $61.22 per barrel, and wholesale gasoline is declining $0.02 at $1.47 per gallon. The Bloomberg gold spot price is dipping $2.92 to $1,246.39 per ounce, and the Dollar Index—a comparison of the U.S. dollar to six major world currencies—is falling 0.3% to 96.78. Natural Gas has traded in a range of $4.39-4.66 today and was last seen trading lower by $0.01 (or - 0.20%) to $4.48/MMBtu.

Source: Schwab Center for Financial Research

Today’s Bullish Activity

Gapping up to a three-week high this morning is Bunge Limited (BG + $1.53 to $61.00) following news that CEO Soren Schroder will step down amid pressure from activist investors D.E. Shaw and Continental Grain to explore strategic options. The company’s Board of Directors said it has created a search committee to locate a new CEO and is open to re-engaging with M&A discussions with both Glencore and Archer-Daniels Midland (ADM - $0.15 to $44.31). Calls are outpacing puts roughly 5:1 which is being driven by activity on the January 2019 62.50 call (volume is 786).

Also trading to the upside is Five Below Inc. (FIVE + $2.04 to $97.62) after Loop Capital upgraded the retailer from “Hold” to “Buy” and increased their price target on the stock from $110.00 to $120.00. Loop Capital analyst Anthony Chukumba cited improving comps and store-level execution, and said that the company is more “economic downturn resistant” than other retailers. Today’s 2% jump puts the stock above its 200-day Simple Moving Average (SMA) of $96.97. Calls are outnumbering puts better than 3:1 with the February 2019 110.00 call leading the pack (volume is 392).

Lastly, shares of Facebook Inc. (FB + $4.62 to $142.05) are rallying on two positive catalysts: a late Friday announcement that the company is adding $9B to its existing $17B share buyback program and a bullish note from Deutsche Bank Lloyd Walmsley who calls the stock’s valuation “extremely attractive”. Calls are outnumbering puts better than 2:1 with the January 2020 175.00 call garnering the most attention from traders (volume is 3,817).  

New 52-week highs (5 new highs today): Getty Realty Corp. (GTY - $0.02 to $31.28), Mitek Systems Inc. (MITK + $0.65 to $9.62), Tribune Media Corp. (TRCO + $0.08 to $45.07)

Notable Call Activity

Vale SA (VALE - $0.37 to $12.78): Calls are outnumbering puts roughly 6:1 as option traders primarily target the January 2019 12.00 call. Volume on this contract is 10,001 (vs. open interest of 38,374) which nearly entirely consisted of two 5K blocks that were bought for $2.22 when the bid/ask spread was $2.04 x $2.32. It’s likely that these blocks are new positions given the expiration date but we can’t be sure since they are below the open interest figure.

Arconic Inc. (ARNC - $0.62 to $19.67): Calls are outnumbering puts roughly 5:1 which is primarily being driven by activity on the February 15th 22.50 call. Volume on this contract is 6,214 (vs. open interest of 5,531) which nearly entirely consisted of two large blocks (4,703 & 1,500) that were bought for $0.90 when the bid/ask spread was $0.78 x $0.94.  

Today’s Bearish Activity 

Shares of Apple Inc. (AAPL - $3.33 to $165.16) are under pressure after CNBC reported that a court in China granted Qualcomm Inc. (QCOM + $1.69 to $57.68) an injunction that would limit the sale of iPhones in China (the two companies have been locked in a long-running legal dispute over patents and imports). Commenting on the report Apple stated, “Qualcomm’s effort to ban our products is another desperate move by a company whose illegal practices are under investigation by regulators around the world. All iPhone models remain available for our customers in China”. AAPL is trading at a seven-month low this morning. Calls are outnumbering puts roughly 4:3 with the December 14th 170.00 call topping the most actives list (volume is 19,375). AAPL average implied volatility has moved higher every day this month, starting at 25% and moving up to the current 37% 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.      

Also trading to the downside is FedEx Inc. (FDX - $10.27 to $191.12) after Bank of America/Merrill Lynch (BAML) downgraded the package delivery company to “Neutral” from “Buy” and cut their price target to $220.00 from $304.00. BAML analyst Ken Hoexter cited the abrupt departure of the head of its Express unit last week saying that the move “could signal a reduction or delay in its profit improvement target”. Shares of FDX closed out November at $229.00 and are down over 15% since then. Calls are slightly outnumbering puts with the December 14th 200.00 call being the most actively traded contract (volume is 2,079).

New 52-week lows (472 new lows today): Apache Corp. (APA - $2.24 to $30.77), Citigroup Inc. (C - $2.14 to $56.21), Skyworks Solutions Inc. (SWKS - $1.43 to $66.14), Tiffany & Co. (TIF - $2.21 to $83.81)

Notable Put Activity

Some unusual put activity (23:1 over calls) is being seen in Tanger Factory Outlet Centers Inc. (SKT - $0.94 to $23.42) as option traders primarily target the March 2019 22.50 put. Volume on this contract is 8,455 (vs. open interest of 483) which included a 6,486 block that was bought for $1.10 when the bid/ask spread was $0.95 x $1.15. We know this block is a new position given the open interest figure and we can assume the intent is bearish in nature since the trade took place above the midpoint of the bid/ask spread.  

Volume Signals     

HD Supply Holdings Inc. (HDS - $0.51 to $37.38): Option volume is running at over 10x the daily average of 354 contracts which is primarily being driven by activity on the January 2019 35.00 put. Volume on this contract is 3,511 (vs. open interest of 152) which nearly entirely consisted of a 1,750 block that was sold at the bid price of $0.65 and a 1,750 block that was sold for $0.70 when the bid/ask spread was $0.65 x $0.80. We know these blocks are new positions given the open interest figure and we can assume that the block trader(s) believe that HDS will remain above $35.00 (in which the entire premium received would be retained) or is comfortable getting long HDS stock if it closes below $35.00 at expiration.  

Ford Motor Co. (F - $0.38 to $8.43): a 49.70K block was bought on the January 2019 8.00 put at the ask price of $0.16 (open interest is 98,367). However, since the block size is below open interest we don’t know whether this is a new position or not. Shares of F are down 10% in December and trading at a six week low this morning.

Gauging Volatility

The CBOE Volatility Index (VIX + 1.25 to 24.48) has been in a range of 23.00-25.94 this morning as equity markets are lower, but well off the earlier morning lows, around the mid-day mark (DJI – 229, SPX – 19, COMPX - 2). VIX option volume has been average today at 254,890 contracts (#8 on the top 10 most actives list) and the activity has been call-biased (the volume put/call ratio is 0.50). The most actively traded contract is the December 19th 17.00 call as volume is 33,240 versus open interest of 152,177.   

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 - December 10, 2018
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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.
Futures trading carries a high level of risk and is not suitable for all investors. Past performance is no guarantee of future results.

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