U.S. stocks are ticking higher with the markets clinging to global economic optimism, bolstered by an unexpected jump to a three-year high in domestic regional manufacturing activity and some relatively upbeat Chinese data. However, a host of earnings and economic data loom and global political uncertainties remain. Treasury yields and the U.S. dollar are ticking higher, while gold is little changed and crude oil is extending last week's gains. Nordstrom is seeing pressure after suspending its search to go private. Asia finished mostly higher and Europe is mixed.
At 10:54 a.m. ET, the Dow Jones Industrial Average and the NASDAQ Composite are rising 0.2%, while the S&P 500 Index is ticking 0.1% higher. WTI crude oil is increasing $0.49 at $51.94 per barrel, Brent crude oil is gaining $0.75 at $57.92 per barrel, and wholesale gasoline is up $0.01 at $1.63 per gallon. The Bloomberg gold spot price is trading $0.28 lower to $1,303.55 per ounce, and the Dollar Index—a comparison of the U.S. dollar to six major world currencies—is nudging 0.1% higher to 93.20.
Source: Schwab Center for Financial Research
Today’s Bullish Activity
Shares of Exelixis Inc. (EXEL + $5.56 to $30.33) are gapping up on heavy volume following news that the company’s drug to treat patients with a certain type of liver cancer met the main goal in a late-stage study. The drug (cabozantinib) is currently approved to treat kidney cancer (under the brand name Cabometyx) and this morning’s announcement helps pave the way for an expanded label approval by the F.D.A. The stock is trading at the highest levels since 2000 following this morning’s announcement. Calls are outpacing puts better than 2:1 but the May 2018 25.00 put is garnering the most attention from traders (volume is 3,500 vs. open interest of 878). It appears that all of the volume on this contract is coming from a single 3,500 block that was sold for $2.20 when the bid/ask spread was $2.15 x $2.75.
Also trading to the upside is Apple Inc. (AAPL + $2.39 to $159.38) after Pacific Crest upgraded the iPhone maker to “Overweight” from “Sector Weight” and put a $187 price target on the stock. Analyst Andy Hargreaves said that Apple is in the early stages of a “more aggressive market segmentation strategy” that will likely translate into higher gross profit margins and high gross profit per user. AAPL is trading near a one-month high and above its 50-day simple moving average (SMA) for the first time since September 20th. Option volume is being dominated by calls (5:2 over puts) with the October 20th 160.00 call being the most actively traded contract (volume is 22,948 vs. open interest of 89,604).
New 52-week highs (228 new highs today): Autodesk Inc. (ADSK - $0.58 to $119.05), Chevron Corp. (CVCX + $0.63 to $119.79), McDonald’s Corp. (MCD - $0.60 to $164.77)
Notable Call Activity
Some unusual call activity (25:1 over puts) is being seen in the iShares MSCI Japan ETF (EWJ + $0.28 to $57.67) as options traders primarily target the November 17th 59.00 call. Volume on this contact is 21,149 versus open interest of 2,935 so we know that this primarily represents new positioning. The bulk of the volume on this contract is being attributed to a 20.20K block that was bought for $0.23, when the bid/ask spread was $0.19 x $0.24, which suggests bullish intent. EWJ is trading at the highest levels since 2007 this morning.
Today’s Bearish Activity
Moving lower this morning is Adobe Systems Inc. (ADBE - $3.83 to $150.10) after Deutsche Bank downgraded the stock to “Hold” from “Buy” while maintaining their $160 price target. Analyst Nandan Amladi lowered five-year growth estimates in the company’s digital marketing segment following recent channel checks and said that valuation is “relatively full” at current levels. Today’s 2.5% drop puts the stock below its 50-day SMA of $151.14. Calls are slightly outpacing puts with the October 20th 155.00 call being the most actively traded contract (volume is 1,008 vs. open interest of 6,268).
Leading the percentage decliners list over on the NASDAQ is Natural Health Trends Corp. (NHTC - $4.93 to $20.00) after the direct-seller of premium quality personal care, wellness and “quality of life” products warned that it expects to report Q3 revenue of $40.1M which compares to the $70.7M reported in the year-ago quarter. Commenting on the preliminary results, NHTC President Chris Sharng said, “During the quarter, a temporary slowdown related to the 20th anniversary of Hong Kong’s handover and the upcoming 19th National Congress of the Communist Party of China scheduled for mid-October tempered our progress”. Today’s 20% drop puts the stock at a one-month low and below its 50-day SMA of $21.51. Puts are outnumbering calls better than 2:1 with the October 20th 21.90 put getting the most attention from traders (volume is 502 vs. open interest of 1,521).
Lastly, shares of Nordstrom Inc. (JWN - $2.50 to $40.14) are dropping to a four-month low following news that founding family of the department-store chain has suspended attempts to take the company private for the rest of the year due to difficulties securing the necessary funding for a deal. Implied volatility is also seeing an uptick as the current 40% compares to Friday’s 36% closing level. Puts are slightly outnumbering calls with the October 20th 42.50 put getting the most attention from traders (volume is 702 vs. open interest of 24,635). 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.
New 52-week lows (35 new lows today): Dick’s Sporting Goods Inc. (DKS - $0.24 to $24.61), Footlocker Inc. (FL - $0.54 to $31.11), Walgreens Boots Alliance Inc. (WBA + $0.49 to $68.05)
Notable Put Activity
Some unusual put activity (14:1 over calls) is being seen in Arcelor Mittal (MT - $0.36 to $28.99) which is being driven by activity on the December 15th 25.00 put. Volume on this contract is 10,668 versus open interest of 609 so it’s likely that this is all new positioning. The bulk of the volume on this contract is being attributed to a 9,385 block that was bought at the ask price of $0.34, which suggests bearish intent.
On a typical day Olin Corp. (OLN - $0.20 to $35.34) sees roughly 295 contracts exchange hands but volume today is already 13,581 around the mid-day mark. The bulk of the volume is going toward the October 20th 35.00 call as volume is currently 12,309 (vs. open interest of 1,469) which included a 9,740 block that was bought at the ask price of $0.55. Since the block size is above open interest we know that this is a new position and since it was bought at the ask price we can assume the block trader has bullish intent.
Option volume is running at four times the daily average on Raytheon Company (RTN + $0.67 to $188.56) which is primarily due to activity on the November 17th 190.00 call. Volume on this contract is currently 12,529 (vs. open interest of 2,417) which mostly consisted of various sized blocks that were bought at or near the ask price (for between $3.05 and $4.35 each), which suggests bullish intent. While Raytheon hasn’t officially announced its fiscal Q4 earnings release date, it is estimated to come out later this month which would indicate that the activity on the November 190.00 call captures the potential impact of that event.
The CBOE Volatility Index (VIX + 0.25 to 9.86) is climbing slightly higher even though all of the major U.S. indices are higher across the board. VIX options volume has been above average at 450,161 contracts (#3 on the most actives list) and the activity has been call-biased (5:3 over puts). The most actively traded contract is the October 18th 10.50 put as volume is currently 62,240 versus open interest of 119,260.
Shares of P G & E Corp. (PCG - $5.02 to $52.70) are under pressure for the third day in a row on heavy volume (7x the daily average one hour into trading) which appears to be related to concerns that the company may face significant liability from the recent wildfires in Sonoma and Napa counties. California state regulators have demanded that P G & E preserve physical and electronic evidence connected to at least seven fires in Northern California and while the company said that it has about $800M in liability insurance, there is no assurance that it will be enough to cover the potential liabilities. Implied volatility has been on the move higher as the current average implied volatility of 46% compares to last Wednesday’s 12% closing level.