Today's Options Market Update

Taking Off with United: Airliner's Earnings, Easing Yields and Dollar Give Wall Street an Early Lift

April 17, 2024 Joe Mazzola
Strength in mega-cap tech and results from United Airlines may be providing a foundation of strength after the market saw three straight days of losses.

Following three days of losses that sent major indexes to nearly two-month lows, stocks turned green early Wednesday despite hawkish words yesterday from Federal Reserve Chairman Jerome Powell. Premarket strength in mega-cap tech and better-than-expected results from United Airlines (UAL) provided a foundation for the early strength, along with a flat Treasury market and solid gains in European shares overnight.

Powell basically told investors what they already know. Inflation isn't coming down quickly enough. "More recent data shows solid growth and continued strength in the labor market, but also a lack of further progress so far this year on returning to our 2% inflation goal," he said during a panel discussion.

His words appeared to have little impact on a market that's already down about 4% from all-time highs set in late March as rate cut ideas get snuffed out of projections. Treasury yields remain near five-month peaks, but upward momentum appears stalled for the moment.

As rate cut hopes fade, company and analyst projections for S&P 500 earnings growth skid. Research firm FactSet projects Q1 S&P 500 earnings growth of 0.9%, down from the previous estimate of above 3%. Still, analysts dial in double-digit earnings growth this year and next, according to FactSet, one element that could keep stocks from falling much further out of bed.

Also, as FactSet noted, historic trends point to Q1 earnings improving from here and possibly ending up with final growth of around 7% year over year. Of the roughly 39 S&P 500 companies reporting through midday Tuesday, 53% beat revenue estimates and 82% outperformed on the bottom line.

Beyond the rate picture, investors could remain on edge today monitoring events in the Middle East, but volatility edged lower early Wednesday.

Both the equity and bond markets "still appear to be in a period of adjustment, or 'price discovery mode,'" said Nathan Peterson, director of derivatives analysis at the Schwab Center for Financial Research. Earlier this year, the bullish narrative driving the market to record highs included a strong U.S. economy, which translates into higher corporate profits, along with expectations for inflation to decelerate and multiple rate cuts from the Fed.

"Now, we're adjusting to a stronger-than-expected economy, which is keeping inflation relatively elevated and therefore a Fed that is reluctant to move into an easing mode," he added.

Morning Rush

The 10-year U.S. Treasury yield (TNX) was down one basis point at 4.65%.

The U.S. Dollar Index ($DXY) slipped to 106.23, still near five-month peaks.

The CBOE Volatility Index® (VIX) eased to 17.94, down from yesterday's five-month high above 19.50.

WTI Crude Oil (/CL) fell 0.75% to $84.72 per barrel.

Bitcoin (BTC) dropped 0.7% to $62,361.

Source: Schwab Center for Financial Research

Today's Bullish Activity

Shares of United Airlines Holdings Inc. (UAL + $5.02 to $46.52) are soaring 12% today to their largest rise in almost three months after the airline carrier forecasted better-than-expected profit for Q2. The company said that adjusted earnings will be $3.75 to $4.25 a share in Q2, topping the $3.73 average of analyst estimates compiled by Bloomberg. United also maintained its full-year profit outlook of $9.00 to $11.00 a share.

For the previous quarter, Q1, United also beat expectations with an adjusted loss of 15 cents a share, better than the 57-cent average loss estimated by analysts. Revenue of $12.5 billion also topped estimates.  

These results seemed to have alleviated some concerns that the Boeing Co. aircraft delays and regulatory pressure would put expansion plans at risk. United announced it now intends to take just 61 new narrowbody planes this year, down from a prior plan of 101 jets and an original expectation of as many as 183 aircrafts. The change will cut United’s capital outlays by about $2.5 billion this year to $6.5 billion. The company also said it will convert some Boeing Max 10 orders to the smaller Max 9 variant and now expects to take an average of 100 narrow-body aircrafts each year from 2025 through 2027, per Bloomberg.

Trading in options of UAL rose to over 128,579 contracts in morning trading (8x daily average). Leading the way are the following trades, expirations, and strikes:

  • April 19th, 2024 46.00 put accounted for 5,076 contracts; open interest is 1,486 contracts.
  • April 19th, 2024 45.00 put accounted for 4,734 contracts; open interest is 5,919 contracts.
  • April 19th, 2024 46.00 call accounted for 3,900 contracts; open interest is 9,492 contracts.

New 52-week highs (21 new highs today): Nextnav Inc. (NN + $0.22+ to $8.24), Everquote Inc. (EVER + $0.11 to $19.96), Rani Therapeutics Holdings (RANI + $1.14 to $8.01), Veralto Corp. (VLTO + $1.05 to $91.92), Wisa Technologies Inc. (WISA + $1.36 to $7.42)

Notable Call Activity

Unusual call activity is noted in Bentley Systems Inc. (BSY + $1.65 to $50.55) Option traders have pushed call volume to 5,170 contracts in morning trading (22x daily average). Most of the activity stems from the May 17th, 2024 expiration where the 50.00 and 55.00 strike calls are generating the most interest (over 4,900 contracts respectively). Traders have primarily been buyers of both strikes at or near their respective offer prices. These purchases appear to represent either new positioning or additions to longs, given the combined open interest of 2,700 contracts between the strikes (suggesting bullish intent).  Shares of BSY are bucking the trend of the overall market today, up 3.70%, and are attempting to rally above their 20-day SMA, 50-day SMA, and 200-day SMA. This would be their first close above those moving averages since the start of April.

Also exhibiting some unusual call activity today (39x daily average) is American Coastal Insurance (ACIC - $0.49 to $10.30), as call volume currently stands at 1,965 contracts in morning trading. We are seeing heavy activity in the November 15th, 2024 expiration month, concentrated around the 11.00 strike.  Multiple block trades have occurred with most of the volume on the buy side, as prices have ranged from $1.75 to $2.10. We know these transactions represent new positioning, given the open interest of 3 contracts (suggesting bullish intent). Shares of ACIC have been under major pressure of late, falling nearly 28% from a pre-earnings peak of $14.25 on February 29th. Shares are also currently trading at their 100-day SMA, which has been an area of support going back to early 2023. Perhaps traders believe this may prove true again.

Today's Bearish Activity

Shares of J.B. Hunt Transport Services Inc. (JBHT - $14.24 to $168.75) are down over 7% in morning trading after the provider of transportation services announced lower Q1 results  that missed market expectations amid a challenging freight market. J.B. Hunt reported net earnings of $1.22 per share for the March quarter, down from $1.89 a year earlier and well below consensus estimates of $1.54. Revenue fell 9% year-over-year to $2.94 billion, missing the analysts’ view for $3.13 billion. The company assigned the overall revenue decline to a 9% drop in gross revenue per load in both its intermodal and truckload segments, 22% fewer loads in the integrated capacity solutions division and a "modest" decline in average trucks and productivity in the dedicated contract services business.

Analysts are already beginning to adjust their ratings and price targets, including CFRA, who cut its rating to Sell and moved the PT down to $148.00. UBS also moved its price target down to $211.00 from $234.00, as did Cowen with a price target move to $181.00 from $193.00.

Option trading in JBHT currently stands at 9,503 contracts, 8x the daily average, as puts outpaced calls over 3:1. Leading the way are the following trades, expirations, and strikes:

  • April 19th, 2024 180.00 put accounted for 1,575 contracts; open interest is 1,909 contracts.
  • April 19th, 2024 165.00 put accounted for 1,321 contracts; open interest is 614 contracts.
  • April 19th, 2024 160.00 put accounted for 1,174 contracts; open interest is 311 contracts.

New 52-week lows (119 new lows today): Pfizer Inc. (PFE - $0.36 to $25.33), Peloton Interactive (PTON - $0.04 to $3.06), Chargepoint Holdings (CHPT - $0.05 to $1.45), Sage Therapeutics (SAGE - $3.32 to $12.31), Walgreens Boots Alliance (WBA - $0.10 to $17.54)

Notable Put Activity

Some unusual put activity is noted today in Avantor Inc. (AVTR - $0.22 to $24.38). This activity equates to over 35,117 put contracts, 28x average daily put volume, and is being driven by traders rolling short put positions from the April 19th, 2024, expiration month to the May 17th,2024, expiration month. The strikes involved in the rolling trades are the April 19th 24.00 put strike and the May 17th 22.50 put strike. Traders have rolled down from the 24.00 strike to the 22.50 strike a total of 17,460 times (34,920 contracts in total) for a net credit of $0.03. This type of trade allows them to maintain their short put positions while collecting a small credit and ratcheting down their break-evens and subsequent risk to a lower strike. In this instance, that involved moving the strike risk from 24.00 down to 22.50. We know this represents new positioning in the May 17th expiration, as the open interest is 1,423 contracts (suggesting neutral to bullish intent).

Also exhibiting some unusual put activity today is the VanEck Oil Services ETF (OIH + $0.46 to $325.75), as current put volume stands at 4,995 contacts (12x average daily volume). Today's put volume is due primarily to multiple block transaction in the July 24th, 2024, expiration month. Traders are purchasing the 295.00 strike put to the tune of over 4,300 contracts at prices ranging from $6.20 to $7.00, all near or at the respective offer price. We know this to be new positioning, as there were only 27 contracts of open interest coming into today (suggesting bearish intent). This could also be hedging against a long position in the OIH, as the ETF had rallied over 12% through last Wednesday to over $351.00 before giving back $26.00 of that move in the past week. Interestingly, shares of OIH are also testing their 200-day SMA which currently sits at $322.19. Perhaps traders are positioning themselves should a break of the 200-day SMA give way to further downside.

Volume Signals

Option trading in Hyatt Hotels (H - $0.35 to $149.40) is unusually active today to the tune of 7,757 contracts, or 79x average daily volume. This activity can be attributed to a large combination trade in the May 17th, 2024, expiration month. With this transaction, traders have purchased through multiple block transactions the 150.00 call strike 3,800 times while simultaneously selling the 140.00 put strike 3,800 times for a net debit of $4.00 when the bid/ask was $3.30 x $4.25. What's interesting about the is trade is the fact that it appears it involves the closing of a short call position at the 150.00 strike, given its open interest, and a possible flip of the bias from bearish to neutral or bullish. This would explain the new short put positioning at the 140.00 strike. Combine that with the fact that shares of H have retreated from a high of $161.50 to their current level of $149.40, and you have some traders that could have called the move correctly and now potentially believe the pullback is complete. Another item of note is that Hyatt shares are now trading at their 50-day SMA which could also provide some support.

Gauging Volatility

The Cboe Volatility Index (VIX + 0.58 to 18.98) has traded on both sides of unchanged today within a wide range (the intraday range is 17.63 – 19.11) as equity markets are down at the midday mark (DJI - 155, SPX - 39, COMPX - 195). VIX option volume is above average today given its position as number 7 on the "Top Volume by Underlying" list. The volume put/call ratio is currently 0.39 with the highest volume contract being the May 22nd 18.00 call (volume is 40,485 vs. open interest of 272,300).

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