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Today's Options Market Update

Stocks Higher Despite Trade Uncertainty

U.S. stocks are nudging higher to close out the week, with the technology sector leading the way, aided by earnings results from Dow member Microsoft. The markets are shrugging off President Donald Trump's latest warning of more tariffs on China and his criticism of the Fed's rate hike campaign. Treasury yields are mixed and the U.S. dollar is trimming a recent gain, with the economic calendar quiet today. Crude oil prices are mixed on the heels of a recent tumble and gold is higher. Asia finished mostly higher and Europe is mixed.

At 10:49 a.m. ET, the Dow Jones Industrial Average and the S&P 500 Index are ticking 0.1% higher, while the NASDAQ Composite is gaining 0.4%. WTI crude oil is decreasing $0.20 at $68.04 per barrel, Brent crude oil is increasing $0.38 at $72.96 per barrel, and wholesale gasoline is up $0.03 at $2.07 per gallon. The Bloomberg gold spot price is up $5.78 to $1,228.75 per ounce, and the Dollar Index—a comparison of the U.S. dollar to six major world currencies—is falling 0.6% to 94.58. Natural Gas has traded in a relatively tight range of $2.76-2.78 and was last seen trading unchanged at $2.77/MMBtu.

Source: Schwab Center for Financial Research

Today’s Bullish Activity

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

  • Honeywell International Inc. (HON + $4.39 to $151.93): the aerospace and defense company reported Q2 earnings of $2.12 per share ($0.11 beat) on revenue of $10.92B (above the $10.8B expected); the company increased guidance as full-year 2018 EPS is expected to come in a range of $8.05-8.15 (from $7.85-8.05) on revenue of $43.1-43.6B (up from $42.7-43.5B) with free cash flow expected to come in a range of $5.6-6.2B (up from $5.3-5.9B); today’s 3% jump puts the stock above its 200-day Simple Moving Average (SMA) of $149.44; puts are outnumbering calls nearly 2:1 which is being driven by activity on the September 21st 105.00 put (volume is 5,555 vs. open interest of 701).
  • Microsoft Corp. (MSFT + $2.57 to $106.97): the software giant reported fiscal Q4 earnings of $1.14 per share ($0.06 beat) on revenue of $30.09B (above the $29.23B expected); server products and cloud services revenue increased 26%, driven by Azure revenue growth of 89%; gaming revenue increased 39% with Xbox software and services revenue growth of 36%; calls are outpacing puts roughly 5:2 with the July 20th 105.00 call seeing the most action from traders (volume is 9,373 vs. open interest of 54,042).
  • VF Corp. (VFC + $4.13 to $93.83): the outdoor apparel company reported fiscal Q1 earnings of $0.43 per share ($0.10 beat) on revenue of $2.79B (above the $2.68B expected) as (adjusted) gross margins increased 170 basis points to 51.3% year-over-year; the company increased guidance as full-year 2019 EPS is expected to come in a range of $3.52-3.57 (from $3.48-3.53) on revenue of $13.6-13.7B (up from $13.45-13.55B); the stock is trading at an all-time high this morning; call volume is dominating (6:1 over puts) with the July 20th 90.00 call being the most actively traded contract (volume is 377 vs. open interest of 1,300).

New 52-week highs (92 new highs today): ASML Holdings Inc. (ASML + $3.54 to $218.80), Cintas Corp. (CTAS + $9.81 to $203.49), Shopify Inc. (SHOP + $0.66 to $172.41), Square Inc. (SQ + $1.44 to $71.76)

Notable Call Activity

Some unusual call activity (10:1 over puts) is being seen in Delta Air Lines Inc. (DAL - $0.29 to $52.71) which is primarily being driven by activity on the July 27th 52.00 call. Volume on this contract is 7,015 versus open interest of 836, so we know that this primarily represents new positioning. The majority of the activity on this contract consisted of buying at or near the ask price, including a 1,725 block that was bought at the ask price of $1.10, which suggests bullish intent.  

Today’s Bearish Activity  

Here are some higher-profile names moving lower this morning in reaction to quarterly earnings results:

  • Manpower Group Inc. (MAN - $2.80 to $83.30): the world leader in innovative workforce solutions reported Q2 earnings of $2.35 per share ($0.02 miss) on revenue of $5.66B (below the $5.88B expected); the company provided disappointing guidance as Q3 EPS is expected to come in a range of $2.37-2.45, excluding non-recurring items, versus the $2.52 consensus estimate; put volume is dominating (4:1 over calls) with the July 20th 85.00 put garnering the most attention from traders (volume is 1,071 vs. open interest of 1,846).
  • Skechers U.S.A. Inc. (SKX - $7.15 to $26.10): the footwear specialist reported Q2 earnings of $0.29 per share ($0.12 miss) on revenue of $1.13B (in-line with estimates) as worldwide comparable same-store sales increased 4.5%; the company issued downside guidance as Q3 EPS is expected to come in a range of $0.50-0.55 on revenue of $1.2-1.225B versus the respective $0.68 and $1.26B consensus estimates; calls are outnumbering puts roughly 4:3 with the January 2020 15.00 put leading the way (volume is 3,139 vs. open interest of 46).
  • Skyworks Solutions Inc. (SWKS - $4.19 to $98.29): the wireless chip maker reported fiscal Q3 earnings of $1.64 per share ($0.04 beat) on revenue of $894.3M (above the $889M expected); the company issued upside guidance as Q4 EPS is expected to be ~ $1.91 on revenue of $992M-1.01B versus the respective $1.88 and $996.52M consensus estimates; the company’s Board of Directors approved a 19% increase in its quarterly dividend to $0.38 per share; calls are outnumbering puts roughly 5:3 with the August 17th 105.00 call topping the most actives list (volume is 510 vs. open interest of 2,188).
  • State Street Corp. (STT - $7.10 to $85.64): the financial services company reported Q2 earnings of $1.88 per share ($0.13 miss) on revenue of $3.03B (below the $3.05B expected); net interest margin was 1.46% versus 1.40% in the year-ago quarter; the estimated Basel III common equity tier 1 ratio for the second quarter increased 10 basis points to 11.3%; STT is trading at a 52-week low this morning; calls and puts are trading roughly even with the August 17th 80.00 put seeing the most action from traders (volume is 751 vs. open interest of 93).

New 52-week lows (33 new lows today): Adient PLC (ADNT - $1.35 to $47.13), Pilgrim’s Pride Inc. (PPC - $0.07 to $18.24), AT&T Inc. (T - $0.08 to $31.19)

Notable Put Activity

Some unusual put activity (nearly 13:1 over calls) is being seen in Cenovus Energy Inc. (CVE + $0.01 to $10.20) which is primarily being driven by activity on the August 17th 10.00 put. Volume on this contract is 2,100 versus open interest of 100, so we know that this primarily represents new positioning. The activity on this contract included a 1,000 block that was bought for $0.30 (when the bid/ask spread was $0.25 x $0.30) and a couple of mid-sized blocks (557, 408) that were bought at the ask price of $0.30.  

Volume Signals     

On a typical day AutoNation Inc. (AN - $0.17 to $49.19) sees 204 contracts exchange hands but total volume is already 5,236 around the mid-day mark today. Option traders were primarily targeting the October 19th 45.00 put as volume is 5,137 versus open interest of only 28, so it’s likely that this is all new positioning. The bulk of the activity on this contract consisted of buying at or near the ask price which included a 4,628 block that was bought at the ask price of $1.54 which suggests bearish intent.

New York Community Bancorp Inc. (NYCB - $0.07 to $11.36): option volume is running at 11x the daily average of 532 contracts which is primarily being driven by activity on the August 17th 11.00 put (volume is 3,019 vs. open interest of 745) and the October 19th 11.00 put (volume is 2,773 vs. open interest of 1,141). The activity on both of these contracts primarily consisted of buying at or near the ask price which suggests bearish intent – two fairly large blocks (1,894 & 926) were bought at the ask price of $0.25 on the August contract while multiple mid-sized blocks (354, 165, 130, 120, etc.) were bought at the ask price of $0.40 on the October contract.

Shake Shack Inc. (SHAK + $0.10 to $68.71): option volume is running at 5x the daily average of 1,230 contracts and the activity is put-biased (4:1 over calls). The majority of the volume is going towards some block activity on the September 21st expiration – a 2,100 block was bought on the 70.00 put for $4.70 (open interest is 98) while another block of the same size was simultaneously sold on the 62.50 put at an average price of $1.725 (open interest is 2,474). It’s difficult to be certain but based on the open interest data it appears that a previously held long 2,100 contract position was rolled up (from the 62.50 to the 70.00 strike) which suggests that the block trader is still bearish on this name. Note: earlier in the trading session today SHAK hit a two-year high of $70.11.   

Lastly, some apparent bearish activity is being seen in Snap Inc. (SNAP - $0.07 to $13.36) as a 10K block was bought at the ask price of $0.30 on the August 17th 11.00 put (open interest is 6,951). Note: SNAP is scheduled to report Q2 earnings on August 7th so this positioning captures the potential impact of that event.  

Gauging Volatility

The CBOE Volatility Index (VIX - 0.20 to 12.67) has been on both sides of the unchanged line today as U.S. indices are higher across the board around the mid-day mark today (DJI +37, SPX +2, COMPX +19). VIX option volume has been tepid (currently missing from the top 10 most actives list) and the activity has been call-biased (roughly 4:1 over puts). The most actively traded contract is the August 22nd 20.00 call as volume is 20,406 vs. open interest of 186,751.

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.         

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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.

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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