Today's Options Market Update

Stocks showed signs of life late yesterday, powered by mega-caps, but those shares lost ground in premarket trading as the rally petered out. Treasury yields climbed to fresh highs this morning, increasingly weighing on equities as the opening bell approached.

"Calmness appears to prevail amid uncertainty ahead of tomorrow's PCE report," says Randy Frederick, managing director of trading and derivatives at the Schwab Center for Financial Research, referring to the August Personal Consumption Expenditures (PCE) prices data due out early Friday. It's the Federal Reserve's preferred inflation report and could help set the tone for coming days (see more below).

Wednesday's comeback began soon after the S&P 500® Index (SPX) sank to an intraday low of 4,238 at around 12:30 p.m. ET. There was no obvious technical trigger for the rally that lifted the SPX more than 1% from its low in less than two hours, but it may have represented a flight to perceived safety in some of the biggest names.

The positive view is that the SPX is now up two of the last three days, though a glass-half-empty observer might remind us that it's down 7% from the late-July peak and barely rose Wednesday. Still, a rally must start somewhere—if that's what this is. September is traditionally the worst month of the year for stocks, and it certainly lived up to its reputation, with the broader market down more than 5% so far. But the October earnings season could give investors more to chew on beyond the endless drumbeat of yields, the dollar, and crude oil.

Contrarian indicators also flash some positive signals.

"This week, equity volume put/call ratios are back to bearish extremes (which is bullish)," Frederick says. "At extremes they become contrarian, implying a decent chance of a short-term bounce."

The 10-year Treasury note yield ($TNX) is slightly higher at 4.639%. The U.S. Dollar Index ($DXY) is slightly lower to 106.20. The Cboe Volatility Index® ($VIX) has been on both sides of the unchanged line today and was last seen lower by 0.46 at 17.76. WTI Crude Oil (/CL) is down nearly 1% to $92.80 per barrel. Gold prices have traded in a range of $1,876.40 to $1,890.90 and were last seen trading lower by 0.74% to $1,877.00. Natural Gas prices have traded in a range of $2.868-2.981 so far today and were last seen trading higher by 1.55% to $2.944/MMBtu.

Source: Schwab Center for Financial Research

Shares of Jabil Inc. (JBL + $13.00 to $118.18) are trading at all-time highs this morning after the provider of electronic manufacturing services reported Q4 earnings of $2.45 per share, excluding non-recurring items ($0.13 beat) on revenue that fell 6.3% year-over-year to $8.46B (below the $8.54B consensus estimate). Looking ahead, the company said that Q1 EPS is expected to come in a range of $2.40-2.80 (above the $2.35 consensus estimate) and Q1 revenue to come in a range of $8.4-9.0B (below the $9.24B expected). Calls are outnumbering puts ~3:2, but the December 15^th 110.00 put is the highest volume contract (volume is 90).

Also trading to the upside this morning is Tractor Supply Company (TSCO + $1.42 to $204.43) after D.A. Davidson upgraded the rural lifestyle retailer to "Buy" from "Neutral" and raised their price target on the stock to $280.00 from $250.00, citing "favorable market dynamics". Option volume is relatively light with the October 20^th 220.00 call leading the way (volume is 65).

New 52-week highs (60 new highs today): Abercrombie & Fitch Company (ANF + $1.52 to $56.08), Costco Wholesale Inc. (COST + $5.05 to $568.58), Watsco Inc. (WSO + $8.30 to $386.04)

Some unusual call activity (~4:1 over puts) is being seen in Canadian Solar Inc. (CSIQ + $0.23 to $35.58) which is primarily being driven by activity on two contracts on the June 2024 expiration earlier this morning:

• 40.00 call (volume is 1,554 vs. open interest of 69): The majority of the transactions on this contract consisted of various-sized blocks that were being bought around the same at the ask price of $1.05, suggesting bullish intent.
• 42.00 call (volume is 2,208 vs. open interest of 175): The majority of the transactions on this contract consisted of various-sized blocks that were being bought around the same at the ask price of $0.80, suggesting bullish intent.

Leading the point decliners list this morning is Workday Inc. (WDAY - $20.47 to $210.34) after the human resource software maker lowered its subscription revenue forecast for the next three years at the company's analyst day yesterday. Workday said that subscription revenue growth is now expected to be between 17-18% versus last year's guidance of 20%+. Shares of WDAY gapped down to the 200-day Simple Moving Average (SMA) of $202.38 near the open this morning and have subsequently rebounded off that indicator. Puts are outnumbering calls ~4:3 with the September 29^th 200.00 put seeing the most action from traders (volume is 1,955).

Also trading to the downside this morning is CarMax Corp. (KMX - $6.69 to $73.00) after the used car retailer reported Q2 earnings of $0.75 per share (in-line with estimates) on Q2 revenue that fell 13.1% year-over-year to $7.07B (above the $7.02B consensus estimate) as Q2 comparable store unit sales declined 9.0% year-over-year. The company paused its (~$2.45B remaining) share repurchase program during the quarter but said it intends to resume buying during the current quarter. Puts are outpacing calls better than 2:1 with the October 13^th 65.00 put leading the way (volume is 608).

New 52-week lows (307 new lows today): Advanced Auto Parts Inc. (AAP - $0.21 to $54.61), Enphase Energy Inc. (ENPH - $0.17 to $119.94), Target Corp. (TGT - $0.64 to $109.10)

Some unusual put activity (~12:1 over calls) is being seen in the SPDR Financial Select Sector Fund (XLF + $0.21 to $33.45) which is primarily being driven by a couple of large blocks were seen simultaneously trading on the November 17^th expiration earlier this morning:

• 32.00 put (open interest is 14,905): A 56,000 contract block was sold at the bid price of $0.40.
• 30.00 put (open interest is 4,842): A 56,000 contract block was bought at the ask price of $0.17.

We know that both of these blocks are new positions based on the respective open interest figures and it appears that a $2.00-wide bull put spread was established for a net credit of $0.23 (x 56,000 contracts x 100 multiplier, excluding commissions). The positioning suggests that the block trader believes that XLF will close above the $32.00 price level at expiration.

Celldex Therapeutics Inc. (CLDX + $0.76 to $28.10): Option volume is running at ~16x the daily average on this developer of therapeutic monoclonal and bispecific antibodies which is primarily being driven by a couple of large blocks that were seen simultaneously trading on the January 2024 expiration earlier this morning:

• 30.00 call (open interest is 481): A 1,000 contract block was bought for $6.98 when the bid/ask spread was $6.30 x $7.10.
• 40.00 call (open interest is 334): A 1,000 contract block was sold for $3.11 when the bid/ask spread was $3.00 x $3.80.

We know that both of these blocks are new positions based on the respective open interest figures and it appears that a bull call spread was established for a net debit of $3.87 (x 1,000 contracts x 100 multiplier, excluding commissions). The positioning suggests that the block trader believes that CLDX will close above the break-even price of $33.87 at expiration. 

Braze Inc. (BRZE + $1.19 to $47.60): Option volume is running at ~10x the daily average on this customer engagement platform operator as option traders primarily target the November 17^th 50.00 call. Volume on this contract is 3,285 versus open interest of 1,116, so we know that the volume primarily represents fresh positioning. The bulk of the transactions on this contract consisted of various-sized blocks that were being bought at various times for between $1.70-1.85 each, which suggests bullish intent.

Sprott Junior Uranium Miners ETF (URNJ + $1.07 to $24.69): Option volume is running at ~10x the daily average on this ETF which is primarily being driven by activity on the March 2024 21.00 call. Volume on this contract is 2,004 versus open interest of 3, so it's likely that nearly all of the volume represents fresh positioning. The bulk of the transactions on this contract consisted of various-sized blocks that were being bought around the same time at the ask price of $7.00 each, which suggests bullish intent.

The Cboe Volatility Index (VIX - 0.46 to 17.76) has been on both sides of the unchanged line today (the intraday range is 17.06-18.77) as equity markets are higher across the board around the mid-day mark (DJI + 113, SPX + 30, COMPX + 136). VIX option volume has been above average today at 654,221 contracts, which puts the index at the #8 spot on the “Top Volume by Underlying” list. The volume put/call ratio is currently 0.28 with the highest volume contract being the January 2024 45.00 call (volume is 61,581 vs. open interest of 153,011).

Interested in receiving notifications of intraday unusual option trades? Follow Schwab’s Managing Director of Trading & Derivatives Randy Frederick on X (formerly Twitter) @RandyAFrederick who will be posting unusual options trades as he sees them throughout the day.