Today's Options Market Update

Indexes Slip, Yields Up on Producer Price Gain

July 12, 2024 Joe Mazzola
The headline Producer Price Index rose 0.2% in June, while the core rate for wholesale prices was up 0.4.%. JPMorgan, Wells Fargo, and Citigroup reported earnings.

Consumer prices may be cooling, but wholesale prices remain warm. Major U.S. indexes were flat and Treasury yields crept higher early Friday after a hotter-than-expected 0.2% rise in the June Producer Price Index (PPI).

Core PPI was even higher at 0.4%, while annual headline PPI climbed 2.6%, the most since March 2023. Annual core rose 3%. Analysts had expected a 0.1% rise in June PPI and a 0.2% increase in monthly core PPI, which strips out volatile food and inflation prices. Annual PPI had been seen at 2.3%, according to Trading Economics, with annual core PPI at 2.5%.

Wholesale prices sometimes can be a leading indicator for future consumer prices. The June U.S. Consumer Price Index (CPI) data released yesterday showed it growing at the lowest rate in three years, putting Treasury yields under pressure and reigniting investor hopes for a September rate cut from the Fed. The PPI data this morning could indicate issues bubbling under the surface, though one report is just a snapshot. Markets didn't seem to reflect too much anxiety over the data 30 minutes after the numbers hit.

"I don't think PPI negates yesterday's CPI report," said Cooper Howard, director, fixed income strategy, at the Schwab Center for Financial Research. "It came in higher than expected with an upward revision to last month which isn't good news for the inflation picture. However, the good news was that yesterday's CPI report was broad based and the PPI components that feed into Personal Consumption Expenditure (PCE) prices, which is the Fed's preferred inflation measure, were lower than expected."
PPI came after a very odd day on Wall Street Thursday triggered by the surprising drop in June CPI. The inflation data sparked hopes for a September rate cut and led to investors rotating quickly out of info tech and into small caps and other areas of the market that might catch the wave from lower rates. Thursday was only the second day since 1979 when the small-cap Russell 2000® Index (RUT) rose more than 3% while the S&P 500® index (SPX) declined, CNBC noted.

It's unclear if that was a one-day event and now the market goes back to chasing tech, or if it's the start of a longer trend back toward investors embracing a much broader group of stocks. Market breadth was up this week even before Thursday with sectors like utilities, real estate, and health care seeing more interest amid slowing economic data. However, info tech shares like Nvidia (NVDA), Apple (AAPL), and Microsoft (MSFT) were slightly higher in pre-market trading today.

JPMorgan Chase (JPM), Citigroup (C), and Wells Fargo (WFC) were the trio of big banks out with earnings early Friday, unofficially kicking off earnings season with mixed results. JPMorgan put together a quarter that easily exceeded analysts' expectations while Wells Fargo didn't. JPM shares didn't see an immediate award from investors in premarket trading, dropping 1%, and WFC got crushed, falling almost 6%. Citigroup (C) managed a light gain.

Investors closely follow JPMorgan CEO Jamie Dimon's thoughts on the economy, and once again he sounded cautious, citing "complex" and "dangerous" geopolitics despite what he called a "rather benign economic outlook" based on market valuations and credit spreads.

Morning Rush

The 10-year U.S. Treasury yield (TNX) rose one basis point after PPI to 4.20%.

The U.S. Dollar Index ($DXY) fell to 104.34.

The Cboe Volatility Index®  (VIX) slipped to 12.14.

WTI Crude Oil (/CL) climbed nearly 1% to $83.35 per barrel on falling U.S. inventories.

Bitcoin (BTC) fell 0.3% to $57,348.

Source: Schwab Center for Financial Research

Today’s Bullish Activity

Shares of Lucid Group Inc. (LCID + $0.67 to $4.07) are jumping today, up over 19% to a six-month high. Lucid shares have now risen 58% from its June 21st low. This comes on the heels of announcements of recent strategic partnerships with Saudi Arabia's Public Investment Fund and Aston Martin. Lucid's CEO, Peter Rawlinson, also remarked that these deals have sparked more interest, and the company is "in discussion with others." 

Just last week, Lucid released numbers that beat expectations for quarterly production and deliveries, sending the automaker's shares higher as it shook off concerns about a slowdown in the electric-vehicle market. Per Bloomberg, the company built 2,110 vehicles in the second quarter and handed 2,394 vehicles over to customers, according to a statement Monday. Both figures rose 22% from the prior three months. Analysts anticipated output of 1,954 EVs and sales of 1,889 on average in estimates compiled by Bloomberg.

Option trading in LCID currently stands at 288,423 contracts, 15x the daily average. Leading the way are the following trades, expirations, and strikes:

  • July 12th, 2024 4.00 call accounted for 37,190 contracts; open interest is 5,198 contracts.
  • July 19th, 2024 4.00 call accounted for 23,259 contracts; open interest is 10,326 contracts.
  • July 12th, 2024 3.50 call accounted for 22,184 contracts; open interest is 19,006 contracts.

New 52-week highs (353 new highs today): Lucid Group Inc. (LCID + $0.67 to $4.07), Ericsson (ERIC + $0.29 to $6.68), AGNC Investment Corp. (AGNC + $0.26 to $10.41), Evgo Inc. (EVGO + $0.58 to $3.95) Kinross Gold Corp. (KGC + $0.03 to $9.21)

Notable Call Activity

Unusual call activity is noted today in Beyond Inc. (BYON + $0.68 to $14.13), as call contracts currently stand at 23,653, 9x the average daily volume in morning trading. The expirations driving the volume appear to be the July 12th and July 19th, 2024 expirations where over 70% of trading volume is taking place. In particular, the July 19th 13.50 strike call has traded over 11,337 contracts, from only 192 contracts of open interest, with most of the transactions occurring near the ask price (suggesting bullish intent). Shares are up 5% today, and up nearly 20% in the past week, off the low price of $11.95 set on July 8th. BYON appears to be benefitting from the rotational trade that has seen money move into the smaller cap stocks. Shares are on pace to settle above their 20-day simple moving average (SMA) for the first time since early April.

Other call activity of note can be seen in EVgo Inc. (EVGO + $0.58 to $3.95), as call activity has spiked to 8,402 contracts in morning trading (4x daily average). Most of that volume can be attributed to activity in the July 19th and August 16th, 2024, expiration months. Traders have executed multiple block trades on the 3.00, 3.50, 4.00, and 4.50 call strikes in both months to the tune of over 6,800 contracts, with action on both sides of the bid/ask, meaning buying and selling. Optimism about improving electric-vehicle sales appears to be driving a rebound in underperforming EV-charging stocks. This includes EVGO, which recently said it had more than a million customer accounts across the 35 states where it operates. Investors are taking notice, as shares are up over 17% today and 50% in the past 10 days.

Today’s Bearish Activity

Shares of Wells Fargo & Company (WFC - $4.13 to $56.00) are down nearly 7% today, after the lender reported net interest income for Q2 that missed the average analyst estimate. Net interest income came in at $11.92B vs. expectations for $12.12B, its lowest level in two years. Wells Fargo also warned in its earnings report that it wouldn't be able to cut costs this year as fast as it had projected after posting higher-than-expected expenses in Q2. Per the report, expenses climbed 2% to $13.3 billion. That compares with the 0.2% increase that analysts had expected and includes $493 million of operating losses amid ongoing customer remediation. Wells Fargo now expects non-interest expenses to fall just 2.8% to $54 billion this year, up from an earlier forecast of $52.6 billion.

WFC shares came into today's earnings report up nearly 25% year-to-date, so expectations were high.  Given the share performance today, and the post-earnings performance of its peers JPM and C, this may be a theme to monitor as many other financial sector companies release earnings next week.

Option trading in WFC currently stands at 222,242 contracts, 6x the daily average. Leading the way are the following trades, expirations, and strikes:

  • July 12th, 2024 57.00 call accounted for 15,689 contracts; open interest is 652 contracts.
  • July 12th, 2024 56.00 call accounted for 10,037 contracts; open interest is 22 contracts.
  • July 12th, 2024 55.00 put accounted for 9,277 contracts; open interest is 2,988 contracts.

New 52-week lows (18 new lows today): Big Lots (BIG - $0.07 to $1.05), Mullen Automotive Inc. (MULN - $0.07 to $2.08), Volcon Inc. (VLCN - $0.17 to $3.57), Tian Ruixiang (TIRX - $0.22 to $1.89)

Notable Put Activity

Some unusual put activity is noted today in Herbalife Ltd (HLF - $0.02 to $10.57). This activity equates to over 21,020 put contracts, 11x average daily put volume, and is being driven by a calendar (roll out) trade, involving a long-put roll, with the July 19th and August 9th, 2024 expiration months. Traders rolled 8,583 of the July 10.00 strike put to the August 11.00 strike put for a debit of $1.45. Basically, traders wanted to extend their duration on their long puts by an additional 14 days and wanted the relative protection from a higher put strike. They were willing to pay $1.45 per roll to do so. We assume this was a roll given the open interest of the two months (suggesting continued bearish intent). Shares of HLF have been in a downtrend for the past year but have rallied off the February low price of $6.68. The 200-day simple moving average, which has acted as resistance on multiple occasions during the downtrend, currently resides at $11.53. It seems that the traders may believe that should a test of that level occur, the resistance would continue to hold.

Unusual put activity can also be seen in Prologis Inc. REIT (PLD + $0.41 to $120.82), as put volume stands at 6,520 contracts in morning trading, 7x average daily volume. Much of this volume stems from activity in the July 19th, 2024, expiration month, specifically at the 120.00 strike. Traders appear to be targeting this strike with both buys and sells in heavy volume, as prices have ranged from $1.55 to $2.15.  It should be noted that the earnings date for PLD is scheduled for July 17th, so this activity could be positioning around that event. It is also interesting that shares of PLD recently traded up above their 200-day simple moving average for the first time since mid-April as the Real Estate sector has been a major benefactor of the recent market rotation with the sector up 5.50% this week alone.

Gauging Volatility

The Cboe Volatility Index (VIX - 0.78 to 12.14) has been on both sides of the unchanged line today and within a wide range (the intraday range is 12.11 – 12.89) as equity markets are up across the board at the midday mark (DJI + 400, SPX + 56, COMPX + 209). VIX option volume is above average today, given its place as 8th amongst the "Top Volume by Underlying" list. The volume put/call ratio is currently 0.58, and the highest volume contract is the September 18th, 2024, 17.00 call (volume is 75,397 vs. open interest of 207,000).

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