Today's Options Market Update

May 17, 2022 Nathan Peterson
Stocks move higher on healthy data.

U.S. equities are rising in hopes to snap a six-week losing streak for the S&P 500 despite a flurry of headwinds. The aggressiveness of the Fed's tightening campaign to combat persistently high inflation and what that means for economic growth going forward remains heavily in focus. In equity news, Dow member Home Depot is ticking lower despite posting strong earnings, while fellow Dow member Walmart is falling after missing on earnings estimates, and the ongoing Twitter saga is in focus after Tesla CEO Elon Musk said the deal is on hold. On the economic front, retail sales, industrial production, capacity utilization, and business inventories all rose, but homebuilder sentiment fell to its lowest level in nearly two years amid rising prices and mortgage rates. Treasuries are lower, pushing yields higher, and the U.S. dollar is cooling after a recent run-up to 20-year highs. Crude oil is ticking higher, and gold is gaining ground. Europe is higher, and Asia finished in the green following some positive real-time COVID data.

As of 12:21 p.m. ET, the Dow Jones Industrial Average is up 0.78%, the S&P 500 is rising 1.36%, and the Nasdaq Composite is increasing 1.80%. WTI crude oil is rising $0.55 at $114.75 per barrel, and Brent crude oil is advancing $0.63 at $114.87 per barrel. The gold spot price is trading $6.90 higher to $1,820.90 per ounce, and the Dollar Index is decreasing 0.8% at 103.42. Natural Gas prices have traded in a range of $8.015-8.372 and were last seen trading higher by $0.328 (or +4.12%) to $8.284/MMBtu.

Source: Schwab Center for Financial Research

Today’s Bullish Activity

Shares of Dow-component Home Depot Inc. (HD + $7.13 to $303.12) are moving higher this morning after the home improvement retailer reported Q1 earnings of $4.09 per share ($0.40 beat) on revenue that rose 3.8% year-over-year to $38.91B (above the $36.78B expected) as comparable same-store sales increased 2.2% year-over-year. In terms of guidance, the company said that it expects fiscal-year 2023 EPS to grow in the “mid-single digits” and FY23 revenue to increase approximately 3.0% (both year-over-year). Calls are outnumbering puts ~4:3 with the May 20th 325.00 call leading the Top Volume list (volume is 3,953).

Also trading to the upside this morning is Take-Two Interactive Software Inc. (TTWO + $10.30 to $120.41) after the video game publisher reported Q4 adjusted profit of $1.09 per share ($0.05 beat) on Q4 adjusted sales of $845.7M (below the $882.1M consensus estimate). Looking ahead, the company said that it expects 2023 adjusted sales to come in a range of $3.75-3.85B, which is below the $3.96B consensus estimate. Calls are outnumbering puts ~2:1 with the May 20th 125.00 call seeing the most action from traders (volume is 1,798).

New 52-week highs (43 new highs today): Cigna Corp. (CI + $2.47 to $268.96), Merck & Company (MRK + $1.03 to $93.35), Occidental Petroleum Corp. (OXY + $0.68 to $68.40)

Notable Call Activity

Some unusual call activity (~20:1 over puts) is being seen in Walgreens Boots Alliance Inc. (WBA + $0.40 to $44.56) as option traders primarily target the May 20th 45.50 call. Volume on this contract is 62,009 versus open interest of 703, so we know that this primarily represents new positioning. The majority of the transactions on this contract consisted of various-sized blocks that were being bought at various-times for between $0.20-0.25 each, which suggests bullish intent.

Today’s Bearish Activity

Leading the point decliners list this morning is Walmart Inc. (WMT - $13.34 to $134.78) after the retail giant reported Q1 earnings of $1.30 per share, excluding non-recurring items ($0.18 miss) on revenue that rose 2.4% year-over-year to $141.6B (above the $138.05B expected) as U.S. comparable same-store sales increased 3.0% year-over-year. Looking ahead, the company said that it expects Q2 EPS is expected to be flat or up slightly (from $1.78), excluding non-recurring items (below the $1.90 consensus estimate) on Q2 revenue that is expected to be up 5% year-over-year to $146.9B (above the $145.74B expected). Puts are slightly outnumbering calls with the May 20th 130.00 put being the highest volume contract (volume is 23,300).

Also trading to the downside is Workday Inc. (WDAY - $6.18 to $169.88) after UBS downgraded the provider of enterprise cloud applications to “Neutral” from “Buy” and dropped their price target on the stock to $185.00 from $275.00. Separately, Tiger Global Management disclosed in a filing on Monday that it has cut its stake in WDAY by 29.4% to 3M shares. Puts are outnumbering calls ~4:3 with the May 20th 165.00 put leading the way (volume is 588).

New 52-week lows (44 new lows today): Allot Communications Inc. (ALLT - $0.60 to $4.73), Global-E Online Ltd. (GLBE - $0.96 to $18.22), Lancaster Colony Corp. (LANC - $2.59 to $131.38)

Notable Put Activity

Some unusual put activity (~7:1 over calls) is being seen in ChargePoint Holdings Inc. (CHPT + $0.47 to $10.41) which is primarily being driven by two large blocks that simultaneously traded on the June 17th expiration earlier this morning:

  • 10.00 put (open interest is 430): A 20,000 contract block was bought for $1.01 when the bid/ask spread was $0.95 x $1.03.
  • 7.00 put (open interest is 88): A 20,000 contract block was sold for $0.14 when the bid/ask spread was $0.12 x $0.17.

We know both of these blocks are new positions given the respective open interest figures and it appears that a $3.00-wide bear put spread was established for a net debit of $0.87 (x 20K contracts x 100 multiplier, excluding commissions). The positioning suggests that the block trader believes that CHPT will close below the break-even price of $9.13 at expiration.

Volume Signals

Elanco Animal Health Inc. (ELAN + $0.95 to $24.26): Option volume is running at over 11x the daily average on this pet health company which is primarily being driven by two large blocks that simultaneously traded earlier this morning:

  • May 20th 24.00 put (open interest is 6,441): A 4,160 contract block was bought for $0.34 when the bid/ask spread was $0.25 x $0.40.
  • June 17th 22.00 put (open interest is 2): A 4,160 contract block was sold for $0.33 when the bid/ask spread was $0.30 x $0.40.

It’s difficult to be certain, but based on the respective open interest figures, it appears that a previously held short 4,160 contract put position was rolled out (from the May to the June expiration) and down (from the 24.00 to the 22.00 strike price). The roll out strategy suggests that the block trader believes ELAN will close above $22.00 by the June expiration.

WisdomTree Cloud Computing Fund (WCLD + $0.17 to $29.17): Option volume is running at over 2x the daily average on this fund which is primarily being driven by a 2,500 contract block that was bought on the June 17th 28.00 call for $2.65 when the bid/ask spread was $2.45 x $2.78 (open interest is 0). We know 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.

Invesco CurrencyShares Euro Currency Trust (FXE + $0.94 to $97.57): Option volume is above the full-day average around mid-day on this trust as option traders primarily target the June 17th 97.00 put. Volume on this contract is 9,403 versus open interest of 3,816, so we know that the volume primarily represents fresh positioning. The bulk of the activity on this contract consisted of various-sized blocks that were being bought at various-times at the ask prices of $0.80 & $0.85 each, which suggests bearish intent.

Gauging Volatility

The CBOE Volatility Index (VIX - 1.35 to 26.12) has been in negative territory all day today (the intraday range is 26.11-27.17) as equity markets are higher across the board around the mid-day mark (DJI + 243, SPX + 54, COMPX + 215). VIX option volume has been above average today at 353,938 contracts which puts the index at the #8 spot on the “Top Volume by Underlying” list. Today’s options activity has been call-biased (the volume put/call ratio is currently 0.62), but the highest volume contract is the May 18th 26.00 put as volume is 16,836 versus open interest of 82,009.

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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