Today's Options Market Update

November 22, 2022 Nathan Peterson
Stocks drift higher on relatively strong earnings reports.

Note: Due to the holiday-shortened week, we will not be publishing a Today’s Options Market Update on Wednesday (23rd) or Friday (25th) but will resume publication on Monday (28th).

U.S. equities are rising, although no notable directional drivers seem to be in play amid the holiday-shortened week, with the markets closed on Thursday for Thanksgiving and trading in a half day on Friday. Equity reports provided some positive earnings surprises, as Dell Technologies, Dollar Tree, and Best Buy all bested expectations, with the latter resuming its share repurchase program in November after a pause in Q2. Additionally, Best Buy is rising as the company posted optimistic guidance, while Dollar Tree is falling after the company tightened its expected full-year earnings range to the lower half of its previous outlook. Today’s economic calendar is quiet, with the most notable report being the Richmond Fed Manufacturing Index, which continued to worsen as expected. The economic docket will heat up tomorrow, with reports on durable goods orders, manufacturing and services PMIs, consumer sentiment, new home sales, as well as the minutes from the Fed’s November monetary policy meeting, and more. Treasury yields are mostly lower ahead of this week’s economic data and the recent inflation reports, while the U.S. dollar is declining. Crude oil and gold prices are gaining ground. Asian stocks ended mixed amid concerns regarding China’s response to its growing number of COVID cases, while European stocks are higher. The global markets continue to assess monetary policy implications from recent inflation data.

At 10:53 a.m. ET, the Dow Jones Industrial Average is rising 0.9%, the S&P 500 Index is gaining 0.8%, and the Nasdaq Composite is up 0.5%. WTI crude oil is increasing $1.49 to $81.53 per barrel, and Brent crude oil is climbing $1.99 at $89.44 per barrel. The gold spot price is trading $3.80 higher to $1,743.40 per ounce, and the Dollar Index is falling 0.5% to 107.37. Natural Gas prices have traded in a range of $6.457-6.976 and were last seen trading higher by $0.013 (or +0.19%) to $6.789/MMBtu.

Source: Schwab Center for Financial Research

Today’s Bullish Activity

Leading the point gainers list this morning is Burlington Stores Inc. (BURL + $28.93 to $186.57) after the retailer reported Q3 earnings of $0.43 per share ($0.09 miss) on revenue that fell 11.5% year-over-year to $2.04B (below the $2.06B consensus estimate) as Q3 comparable same-store sales decreased 16% year-over-year (vs. a 16% increase in Q3 2021). Looking ahead, the company said that Q4 EPS is expected to come in a range of $2.45-2.75 (vs. the $2.62 consensus estimate) with Q4 comparable same-store sales expected to decrease 6-9% year-over-year. Puts are outnumbering calls ~3:2 with the November 25th 190.00 call being the highest volume contract (volume is 2,080).

Also trading to the upside is Dick’s Sporting Goods Inc. (DKS + $7.53 to $114.47) after the sporting goods retailer reported Q3 earnings of $2.60 per share, excluding non-recurring items ($0.34 beat) on revenue that rose 7.7% year-over-year to $2.96B (above the $2.7B consensus estimate) as comparable same-store sales increased 6.5% year-over-year. Looking ahead, the company raised its FY23 EPS guidance to a range of $11.50-12.10 (from $10.00-12.00) and raised its FY23 comparable same-store sales guidance to a range of negative 1.5-3.0% (from negative 2.0-6.0%). Calls are outnumbering puts ~3:1 with the November 25th 115.00 call being the highest volume contract (volume is 6,377).

New 52-week highs (87 new highs today): Aflac Inc. (AFL + $0.69 to $72.06), Gilead Sciences Inc. (GILD + $0.95 to $85.30), International Business Machines Inc. (IBM + $1.70 to $148.38)

Notable Call Activity

Some unusual call activity (~9:1 over puts) is being seen in footwear maker Caleres Inc. (CAL + $0.41 to $27.89) as option traders primarily target the December 18th 30.00 call. Volume on this contract is 3,019 versus open interest of 1,966, so we know that the volume primarily represents new positioning. The bulk of the transactions on this contract consisted of various-sized blocks that were being bought at various times at the ask price of $0.40 each, which suggests bullish intent.

Today’s Bearish Activity

Shares of Dollar Tree Inc. (DLTR - $17.02 to $148.22) are under pressure this morning after the discount retailer reported Q3 earnings of $1.20 per share ($0.02 beat) on revenue that rose 8.1% year-over-year to $6.94B (above the $6.84B consensus estimate) as enterprise same-store sales increased 6.5% year-over-year. Looking ahead, the company guided Q4 revenue to a range of $7.5-7.68B (above the $7.52B consensus estimate) with Q4 comparable same-store sales expected to increase in the mid-to-high-single-digit percentages. For FY23, the company said that EPS is expected to come in at the lower end of its prior $7.10-7.40 guidance with FY23 revenue expected to come in a range of $28.14-28.28B (above the $28.05B expected). Calls are outnumbering puts ~3:2 with the February 2023 195.00 call seeing the most action from traders (volume is 4,509).

Also trading to the downside is Zoom Video Communications Inc. (ZM - $3.26 to $77.00) after the video conferencing company reported Q3 earnings of $1.07 per share ($0.23 beat) on revenue that rose 4.9% year-over-year to $1.1B (in-line with the $1.1B expected). Looking ahead, the company said that Q4 EPS is expected to come in a range of $0.75-0.78 (below the $0.82 consensus estimate) on revenue that is expected to come in a range of $1.095-1.105B (below the $1.12B consensus estimate). Puts are outnumbering calls ~4:3 with the November 18th 78.00 call being the highest volume contract (volume is 8,349).

New 52-week lows (206 new lows today): Apollo Medical Holdings Inc. (AMEH - $0.56 to $27.72), Hudson Global Inc. (HSON - $0.36 to $20.97), Medtronic Inc. (MDT - $5.24 to $77.05)

Notable Put Activity

Some unusual put activity (~3:1 over calls) is being seen in the SPDR Select Sector Energy Fund (XLE + $2.65 to $93.04) which is primarily being driven by some spread activity on the December 30th expiration earlier this morning:

  • 75.00 put (open interest is 1,331): Three large blocks (25,000, 11,990 & 3,000) were bought at different times at the ask price of $0.40.
  • 69.00 put (open interest is 452): Three large blocks (25,000, 11,990 & 3,000) were sold at the same respective times as the block trades above at the bid price of $0.16.

We know that all of these blocks are new positions based on the respective open interest figures and it appears that three $6.00-wide bear put spreads were established here (it’s unclear whether they were all initiated by the same block trader).

Volume Signals

Clean Harbors Inc. (CLH + $1.98 to $120.01): Option volume is running at over 12x the daily average on this provider of environmental and industrial services which is primarily being driven by two large blocks that simultaneously traded on the December 16th expiration:

  • 115.00 call (open interest is 406): A 1,000 contract block was sold for $6.85 when the bid/ask spread was $6.30 x $7.50.
  • 120.00 call (open interest is 370): A 1,000 contract block was bought at the ask price of $3.50.

We know that both of these blocks are new positions based on the respective open interest figures and it appears that a $5.00-wide bear call spread was established for a net credit of $3.35 (x 1K contracts x 100 multiplier, excluding commissions). The positioning suggests that the block trader believes that CLH will close below the break-even price of $118.35 at expiration.

Upland Software Inc. (UPLD + $0.09 to $7.33): Option volume is running at ~4x the daily average on this developer of cloud-based tools for digital transformation which is primarily being driven by three fairly large blocks that simultaneously traded on the July 2023 expiration:

  • 15.00 call (open interest is 0): A 500 contract block was sold for $0.10 when the bid/ask spread was $0.05 x $0.90.
  • 10.00 call (open interest is 0): A 500 contract block was bought for $0.65 when the bid/ask spread was $0.55 x $0.70.
  • 5.00 put (open interest is 9): A 500 contract block was sold for $0.43 when the bid/ask spread was $0.40 x $0.50.

We know that all of these blocks are new positions based on the respective open interest figures and it appears that a risk reversal call spread was established for a net debit of $0.12 (x 500 contracts x 100 multiplier, excluding commissions). The positioning suggests that the block trader believes that UPLD will close above the break-even price of $10.12 at expiration.

iShares MSCI Emerging Markets ETF (EEM + $0.05 to $37.60): A 40,000 contract block was bought on the June 2023 33.00 put for $1.28 when the bid/ask spread was $1.01 x $1.43 (open interest is 33,832). We know that this block is a new position based on the open interest figure and we can assume that the intent is bearish in nature since the trade took place above the midpoint of the bid/ask spread.

Gauging Volatility

The Cboe Volatility Index (VIX - 0.86 to 21.50) has been on both sides of the unchanged line today (the intraday range is 21.48-22.71) as equity markets are higher across the board around the mid-day mark (DJI + 322, SPX + 41, COMPX + 105). VIX option volume has been above average at 480,497 contracts, which puts the index at the #8 spot on the “Top Volume by Underlying” list. The volume put/call ratio is currently 0.25, with the highest volume contract being the January 2023 70.00 call (volume is 85,168 vs. open interest of 269,338).

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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