Today's Options Market Update
Reciprocal Tariff Rates, Recession Fears Send Stocks Lower
President Trump's tariffs plunged Wall Street back into correction mode this morning, sending major indexes down more than 3% toward six-month lows. The sweeping tariffs—which include an across-the-board 10% tariff on imports and will top 50% for some countries, including China—put U.S. trade barriers at their highest levels since the Model T was a new car and far surpassed what most analysts anticipated. Volatility spiked, recession fears ramped up, and Treasury yields plunged as investors sought perceived safety away from equities.
The hardest hit areas early today included multi-national stocks with heavy export and import exposure, including apparel firms, big box stores, and tech. The U.S. dollar also cratered to five-month lows, somewhat surprising considering tariffs would normally cause the greenback to rise. "It seems investors are more focused on potential weakness in U.S. growth as a result of tariffs," said Kathy Jones, chief fixed income strategist at Schwab. "It's a substantial regressive tax—about 2% of gross domestic product."
Tariffs are taxes on U.S. companies. They'll likely pass along some of the costs to U.S. consumers, who will then lose spending power. Consumer spending is 70% of the economy, and a substantial dip likely means slower growth and possibly recession. "The announcement launches an unprecedented economic experiment, one which most economists believe will result in higher prices, slower growth, and rising inflation, but which the White House believes will fundamentally reshape the U.S. economy with ultimately positive results," said Michael Townsend, managing director, legislative and regulatory affairs at Schwab. "Time will tell which view turns out to be correct."
Source: Schwab Center for Financial Research
Morning Rush
The 10-year U.S. Treasury yield (TNX) is lower by ~16 basis points to 4.034%.
The U.S. Dollar Index ($DXY) is lower by 2.05 at 101.75.
WTI Crude Oil (/CL) is lower by 7.66% to $66.22/barrel.
Gold prices are hitting all-time highs today and have traded in a range of $3,073.20-$3,196.60, last seen trading lower by 0.90% to $3,137.60/oz.
Natural Gas prices have traded in a range of $3.968-4.203 and were last seen trading higher by 1.92% to $4.133.
Bitcoin (BTC) is lower by ~0.88% to $81,693.01.
Today's Bullish Activity
Trading at all-time highs this morning is Cboe Global Markets Inc. (CBOE + $6.73 to $231.21) after Bank of America Securities (BofA) increased the price target on the exchange operator to $260.00 from $251.00 while maintaining their "Buy" rating on the stock. BofA analyst Craig Siegenthaler said the increasingly uncertain macroeconomic and geopolitical backdrop is producing "ideal conditions for trading across asset classes". Calls are outnumbering puts ~2:1 with the May 16th 240.00 call being the highest volume contract (volume is 192).
Also moving higher this morning is TJX Companies Inc. (TJX + $1.37 to $126.23) after Citigroup upgraded the discount retailer to "Buy" from "Neutral" and bumped their price target on the stock to $140.00 from $128.00. Analysts at Citigroup said that tariffs are likely to create "significant disruption" in the market, which increases the availability of product available at off-price retailers like TJX. Calls are slightly outnumbering puts, but the May 16th 120.00 put seeing the most action from traders (volume is 1,045).
New 52-week highs (65 new highs today): AutoZone Inc. (AZO + $46.13 to $3,855.39), Duke Energy Corp. (DUK + $3.39 to $123.78), Waste Management Inc. (WM + $1.86 to $236.42)
Notable Call Activity
Some unusual call activity (~12:1 calls over puts) is being seen in Goodyear Tire & Rubber Co. (GT + $1.15 to $10.27) which is primarily being driven by activity on the May 16th 11.00 call. Volume on this contract is 10,824 versus open interest of 306, so we know that the volume primarily represents fresh positioning. The bulk of the transactions consisted of various mid-sized blocks that were bought around the same time at the ask price of $0.35 each, which suggests bullish intent.
Today's Bearish Activity
Shares of RH Inc. (RH - $107.84 to $141.51) are gapping down near five-year lows this morning after the furniture retailer reported Q4 earnings of $1.58 per share excluding non-recurring items ($0.34 miss) on revenue that rose 10.0% year-over-year to $812.41M (below the $829.56M). The company also issued downside guidance as Q1 revenue is expected to increase 12.5-13.5% year-over-year, or ~$817.83-825.10M, which is below the $840.42M FactSet consensus estimate. Calls are slightly outnumbering puts, but the April 4th 145.00 put is the highest volume contract (volume is 4,020).
Also trading to the downside this morning is Parker-Hannifin Corp. (PH - $66.96 to $562.02) after Wolfe Research downgraded the maker of industrial machinery to "Peer Perform" from "Outperform". Analysts at Wolfe Research said the U.S. industrial lead indicators are unlikely to improve due to ongoing tariff-related macroeconomic uncertainties. Shares of PH are trading at an eight-month low this morning. Puts are outpacing calls ~8:1 with the May 16th 540.00 put seeing the most action from traders (volume is 458).
New 52-week lows (799 new lows today): Applied Materials Inc. (AMAT - $9.90 to $137.85), Dick's Sporting Goods Inc. (DKS - $29.25 to $182.07), United Parcel Services Inc. (UPS - $8.22 to $101.98)
Notable Put Activity
Some unusual put activity (~12:1 puts over calls) is being seen in RxSight Inc. (RXST - $9.93 to $16.19) as option traders primarily target the September 19th 15.00 put. Volume on this contract is 2,058 versus open interest of 0, so we know that all the volume represents fresh positioning (assuming no day trades). The bulk of the transactions consisted of various-sized blocks that were bought around the same time at the ask price of $2.15 each, which suggests bearish intent.
Volume Signals
Tronox Holdings PLC (TROX - $0.89 to $5.98): Option volume is running at ~85x the daily average on this vertically integrated manufacturer of TiO2 pigment which is primarily being driven by a 2,000 contract block that was bought on the December 19th 10.00 call for $0.23 when the bid/ask spread was $0.15 x $0.25 (open interest is 760). We know that this block is a new position based on the open interest figure, and we can assume the intent is bullish in nature since the trade took place above the midpoint of the bid/ask spread.
Arcus Biosciences Inc. (RCUS - $0.37 to $7.52): Option volume is running at ~57x the daily average on this clinical-stage biopharmaceutical company which is primarily being driven by activity on the December 19th 10.00 call. Volume on this contract is 3,428 versus open interest of 0, so we know that all the volume represents fresh positioning (assuming no day trades). The bulk of the transactions consisted of various-sized blocks that were bought around the same time at the ask price of $1.45 each, which suggests bullish intent.
Ferrari N.V. (RACE - $6.10 to $432.44): Option volume is running at ~11x the daily average on this luxury car maker which is primarily being driven by a 3,000 contract block that was sold on the June 20th 370.00 put for $6.46 when the bid/ask spread was $6.10 x $6.90 (open interest is 60). We know that this block is a new position based on the open interest figure and the put sale suggests that the block trader believes that RACE will close above the $370.00 price level and/or is comfortable taking a long 300,000 share position in the stock at an effective purchase price of $363.54 if RACE closes below $370.00 at expiration.
Gauging Volatility
The Cboe Volatility Index (VIX + 6.40 to 27.91) has been in positive territory all day today (intraday range is 24.93-29.26), as equity markets are higher around the midday mark (DJI + 90, SPX + 31, COMPX + 181). VIX option volume is above average today at 1,222,788, which puts the index at the #8 spot on the "Top Volume by Underlying" list. The volume put/call ratio is currently 0.55 with the highest volume contract being the April 16th 20.00 put (volume is 90,277 vs. open interest of 166,921).
