Today's Options Market Update

July 1, 2022 Nathan Peterson
Stocks start the new quarter on the downside.

U.S. stocks are trading lower to begin Q3, with the global markets continuing to grapple with recession uncertainty, which has ramped up as monetary policies tighten and economic data has suggested slowing activity. The economic calendar showed that manufacturing activity continued to slow in June, while construction spending unexpectedly dipped in May. Treasuries are gaining ground to apply further downside pressure on yields, and the U.S. dollar back in rally mode. Crude prices are gaining solid ground and gold is seeing pressure. In equity news, Micron Technology topped earnings estimates but its guidance came in well below expectations, Kohl's Corporation is falling after calling off takeover negotiations with Franchise Group, and GM issued mixed guidance. Asia finished broadly lower, and Europe is trading mixed.

As of 12:16 p.m. ET, the Dow Jones Industrial Average is down 0.35%, the S&P 500 is lower by 0.6% and the Nasdaq Composite is shedding 0.40%, while the S&P 500 is down 0.6%. WTI crude oil is $1.96 higher at $107.72 per barrel, and Brent crude oil is rising $1.42 at $110.45 per barrel. The gold spot price is trading $5.60 lower to $1,801.70 per ounce, and the Dollar Index is rallying 0.9% at 105.60. Natural Gas prices have traded in a range of $5.59-5.95 and were last seen trading higher by $0.317 (or +5.84%) to $5.741/MMBtu.

Source: Schwab Center for Financial Research

Today’s Bullish Activity

Shares of Accolade Inc. (ACCD + $1.08 to $8.48) are trading higher this morning after the healthcare provider reported a Q1 adjusted loss of $0.62 per share ($0.05 beat) on revenue that rose 43.7% year-over-year to $85.53M (above the $81.97M expected). Looking ahead, the company said that Q2 revenue is expected to come in a range of $82.0-83.5M and fiscal-year 2023 revenue is expected to come in a range of $355-365M versus the respective $84.1M and $357.5M consensus estimates. Puts are outnumbering calls ~3:2 with the July 15th 7.50 put seeing the most action from traders (volume is 402).

Also trading to the upside is Coupang Inc. (CPNG + $1.52 to $14.27) after Credit Suisse upgraded the South Korean e-commerce giant to “Outperform” from “Neutral” while lowering their price target on the stock to $19.00 from $28.00. Credit Suisse analyst Soyun Shin believes the company has a clearer profitability path and feels the current price offers investors an attractive opportunity amid a “bottom line turnaround”. Calls are outnumbering puts ~3:1 with the January 2023 25.00 call being the highest volume contract (volume is 3,069).

New 52-week highs (10 new highs today): General Mills Inc. (GIS + $0.06 to $75.51), Harte Hanks Inc. (HHS + $0.43 to $13.17), Huron Consulting Inc. (HURN - $0.74 to $64.25)

Notable Call Activity

Some unusual call activity (~100:1 over puts) is being seen in Elanco Animal Health Inc. (ELAN + $0.68 to $20.31) which is primarily being driven by a couple of large blocks that traded around the same time on the September 16th 21.00 call – a 5,000 contract block was bought at the ask price of $1.30 and a 5,000 contract block was bought for $1.25 when the bid/ask spread was $0.65 x $1.30 (open interest is 7). We know both of these blocks are new positions based on the open interest figure and we can assume the intent is bullish in nature given where the trades took place within the bid/ask spread.

Today’s Bearish Activity

Shares of Micron Technology Inc. (MU - $2.37 to $52.91) are under pressure this morning after the DRAM and NAND maker reported Q3 earnings of $2.59 per share ($0.14 beat) on revenue that rose 16.4% year-over-year to $8.64B (slightly below the $8.66B consensus estimate) as non-GAAP gross margin was 47.4% (vs. 47.8% in the prior quarter). The company issued downside guidance as Q4 EPS is expected to come in a range of $1.43-1.83 on revenue that is expected to come in a range of $6.8-7.6B, which is below the respective $2.60 and $9.17B consensus estimates. Calls are slightly outnumbering puts with the July 1st 58.00 call being the highest volume contract (volume is 15,358).

Also trading to the downside is Zim Integrated Shipping Services Ltd. (ZIM - $3.07 to $44.15) after Bank of America (B of A) double downgraded the container shipper to “Underperform” from “Buy” and cut their price target on the stock to $40.00 from $79.00. B of A analyst Muneeba Kayani stated, “Elevated US goods imports were a key reason for the port congestion that impacted 12% of global capacity and resulted in current ocean spot rates at more than four times pre-pandemic levels. This congestion could unwind rapidly, in our view, driving a sharp correction in ocean spot rates. ZIM’s largely chartered fleet and lower proportion of contracted volumes make it more exposed than other carriers to declining spot rates, in our view. We shift our target EV/EBIT multiple to our 2023 estimates and lower our LT ocean multiple to 6x (from 10x), which is below the multiple for Maersk given higher uncertainty”.  Puts are outnumbering calls ~3:2 with the October 21st 40.00 put leading the way (volume is 1,157).

New 52-week lows (147 new lows today): Advanced Micro Devices Inc. (AMD - $3.47 to $73.00), Freeport-McMoRan Inc. (FCX - $1.12 to $28.14), Nvidia Corp. (NVDA - $5.59 to $146.00)

Notable Put Activity

Some unusual put activity (~50:1 over calls) is being seen in Starwood Property Trust Inc. (STWD - $0.16 to $20.73) which is primarily being driven by a 20,000 contract block that was bought on the August 19th 19.00 put at the ask price of $0.50 (open interest is 99). We know this block is a new position based on the open interest figure and we can assume the intent is bearish in nature since the trade took place at the ask price.

SPDR EURO STOXX 50 ETF (FEZ - $0.48 to $34.31): Puts are outpacing calls ~21:1 which is primarily being driven by two large blocks that simultaneously traded on the August 19th expiration:

  • 32.00 put (open interest is 27,123): An 8,400 contract block was bought at the ask price of $0.80.
  • 30.00 put (open interest is 3,083): An 8,400 contract block was bought at the ask price of $0.45.

We know that the block trade on the 30.00 put is a new position, but beyond that it’s difficult to determine what the positioning represents (ex. roll-down, bear put spread, two long put purchases).

Volume Signals

FinVolution Group Inc. (FINV + $0.05 to $4.80): Option volume is running at over 16x the daily average on this China-based fintech platform which is primarily being driven by activity on the December 16th 7.50 call. Volume on this contract is 2,005 versus open interest of 15, so we know that nearly all of the volume represents new positioning. The bulk of the transactions on this contract consisted of various mid-sized blocks that were being bought around the same time at the ask price of $0.20 each, which suggests bullish intent.

iShares S&P GSCI Commodity-Indexed Trust (GSG - $1.24 to $47.91): Option volume is running at nearly 7x the daily average on this trust which is primarily being driven by an 8,200 contract block that was bought on the August 19th 22.00 put for $0.68 when the bid/ask spread was $0.50 x $0.75 (open interest is 152). We know this block is a new position based on 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.

International Game Technology PLC (IGT + $0.15 to $18.70): Option volume is running at over 6x the daily average on this provider of gaming technology products and services which is primarily being driven by three large blocks that simultaneously traded out on the October 21st expiration earlier this morning:

  • 21.00 call (open interest is 92): A 15,000 contract block was bought for $1.80 when the bid/ask spread was $1.61 x $1.90.
  • 19.00 put (open interest is 6): A 15,000 contract block was sold for $2.71 when the bid/ask spread was $2.61 x $2.86.
  • 14.00 put (open interest is 1,800): A 15,000 contract block was bought for $0.96 when the bid/ask spread was $0.71 x $1.15.

We know that all of these blocks are new positions based on the respective open interest figures and it appears that the block trader established a (bullish) risk reversal (using the 21.00 call and 19.00 put) and simultaneously purchased a lower strike put for protection. The three-legged position was established for a net debit of $0.05 (x 15K contracts x100 multiplier, excluding commissions) and it suggests that the block trader believes that IGT will close above the break-even price of $21.05 at expiration.

Gauging Volatility

The Cboe Volatility Index (VIX - 0.81 to 27.90) has been on both sides of the unchanged line today (the intraday range is 27.53-29.59) as equity markets are lower across the board around the mid-day mark (DJI - 187, SPX - 20, COMPX - 63). VIX option volume has been tepid today as the index is currently missing from the “Top Volume by Underlying” list. Today’s options activity has been call-biased (the volume put/call ratio is currently 0.27), with the highest volume contract being the July 20th 45.00 call (volume is 15,382 versus open interest of 45,746).

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

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