Today's Options Market Update

U.S. stocks are adding to the rally that started late last week, with resuscitated hope that the fiscal relief stalemate could thaw, progress on the COVID-19 fight, and positive signs of economic recovery remaining bullish catalysts. However, tomorrow will bring the first presidential debate as the highly-contentious election looms and Friday's key look at the employment front is on the horizon. Treasury yields are little changed and the U.S. dollar is trimming a recent rebound, amid the advance in the equity markets and on the heels of a stronger-than-expected read on regional manufacturing activity. Gold is higher and crude oil prices are mixed. Uber Technologies is rising on a favorable court ruling in the U.K. and Devon Energy announced a merger with WPX Energy. Asia finished mixed and Europe is rallying.

At 12:46 p.m. ET, the Dow Jones Industrial Average is up 1.9%, the S&P 500 Index is gaining 1.5%, and the NASDAQ Composite is increasing 1.2%. WTI crude oil is dipping $0.08 to $40.17 per barrel, Brent crude oil is gaining $0.03 to $42.44 per barrel, and wholesale gasoline is up $0.01 at $1.20 per gallon. The Bloomberg gold spot price is $5.08 higher at $1,866.66 per ounce, and the Dollar Index—a comparison of the U.S. dollar to six major world currencies—is declining 0.3% to 94.34. Natural Gas prices have traded in a range of $2.03-2.15 and were last seen trading higher by $0.01 (or + 0.47%) to $2.149/MMBtu.

Source: Schwab Center for Financial Research

Today’s Bullish Activity

Leading the percentage gainers list this morning is Piedmont Lithium Ltd. (PLL + $20.02 to $31.02) after the Australian lithium miner has entered into a binding agreement with Tesla Inc. (TSLA + $14.46 to $421.79) for the supply of spodumene concentrate from Piedmont’s North Carolina deposit. The agreement is for an initial five-year term on a fixed-price binding agreement and could be extended by a second five-year term if both companies agree. Note: PLL has a low float (7.67M shares) and is therefore highly volatile and options are not currently listed on this stock.  

Several stocks are moving higher following bullish analyst moves:

• Chevron Inc. (CVX + $1.60 to $73.43): Bank of America Securities upgraded the energy giant to “Buy” from “Neutral” and put a $96.00 price target on the stock. Calls are outnumbering puts roughly 5:3 with the October 2^nd 75.00 call topping the most actives list (volume is 704).
• FedEx Corp. (FDX + $5.55 to $255.72): Deutsche Bank upgraded the package delivery company to “Buy” from “Hold” and put a $318.00 price target on the stock, citing underappreciated pricing power. Calls are outpacing puts nearly 4:1 with the October 2^nd 270.00 call garnering the most attention from traders (volume is 1,593).
• Snap Inc. (SNAP + $0.88 to $25.57): Guggenheim upgraded the social media company to “Buy” from “Neutral” rating and bumped their price target to $28.00 from $22.00, citing valuation. Calls are outpacing puts roughly 7:1 with the October 2^nd 26.50 call leading the way (volume is 30,133).
• Virgin Galactic Holdings Inc. (SPCE + $3.47 to $19.90): Susquehanna initiated coverage on the integrated aerospace company with a “Positive” rating and put a $20.00 price target on the stock while Bank of America Securities started coverage on SPCE with an “Buy” rating and a $35.00 price target on the stock. Calls are outpacing puts roughly 4:1 with the October 2^nd 20.00 call topping the most actives list (volume is 21,647).

New 52-week highs (47 new highs today): Arena Pharmaceuticals Inc. (ARNA + $1.89 to $75.58), Draftkings Inc. (DKNG + $4.33 to $57.52), Target Corp. (TGT + $2.36 to $156.71)

Notable Call Activity

Some unusual call activity (~7:1 over puts) is being seen in Stitch Fix Inc. (SFIX + $0.75 to $26.99) which is primarily being driven by activity on the October 2^nd 28.00 call. Volume on this contract is 11,160 versus open interest of 331, 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 for between $0.66 and $0.75 each, which suggests bullish intent.

Today’s Bearish Activity   

Leading the percentage decliners list this morning is Inovio Pharmaceuticals Inc. (INO - $3.39 to $13.55) following news that U.S. Food & Drug Administration (FDA) has placed a partial clinical hold on the company’s plans to start a late-stage trial of its COVID-19 vaccine (CELLECTRA 2000). The FDA said that it needs more information from the company, including details on a delivery device used to inject genetic material into cells. Calls are outnumbering puts roughly 5:3 but the October 2^nd 11.00 put seeing the most action from traders (volume is 3,853).

Also trading to the downside is Expedia Group Inc. (EXPE - $1.11 to $92.46) after RBC downgraded the online travel agency to “Sector Perform” from “Outperform” while maintaining their $93.00 price target. RBC said that Expedia has fallen to the third most popular travel site (behind Airbnb and Google) and multi-year trends suggest that the site has slipped in terms of best selection, ease of use and best prices.  Calls are outnumbering puts roughly 9:1 with the January 2021 90.00 call is the most actively traded contract (volume is 3,669).

New 52-week lows (14 new lows today): Ardmore Shipping Corp. (ASC - $0.04 to $2.98), Mercer International Inc. (MERC - $0.11 to $6.22), Orchard Therapeutics PLC (ORTX - $0.10 to $4.32)

Notable Put Activity  

Some unusual put activity (~15:1 over calls) is being seen in Vulcan Materials Co. (VMC + $4.25 to $134.73) which is primarily being driven by a couple of large blocks that simultaneously traded earlier this morning:

• November 20^th 110.00 put (volume is 2,039 vs. open interest of 196): A 1,400 contract block traded at the bid price of $1.35.
• February 2021 110.00 put (volume is 2,021 vs. open interest of 33): A 1,500 contract block traded at the bid price of $4.00.

It’s difficult to be clear on what is going on here since both trades took place at the bid price, but it’s likely that this is either a long calendar spread (meaning the Feb 110 put was bought and the Nov 110 put was sold, for a net debit of $2.65) was established in a 14:15 ratio or a double long put (bearish) position was established here.

Volume Signals     

American Airlines Group (AAL + $0.61 to $12.90): the fourth most actively traded option contract in the market today is the AAL 12/2/2020 13.00 call as volume is 62,091 versus open interest of 15,607 (suggesting primarily new positioning here). The bulk of the transactions on this contract mostly consisted of various-sized blocks that were being bought at various times for between $0.30 and $0.46 each, which suggests bullish intent.   

Dish Network Corp. (DISH - $0.14 to $8.29): Option volume is running at roughly 19x the daily average of 388 contracts which is primarily being driven by activity on the December 18^th 32.50 call. Volume on this contract is 8,432 (vs. open interest of 4,142) which mostly consisted of various-sized blocks that were being bought at various times for between $2.22 and $2.30 each, which suggests bullish intent.

ETFMG Alternative Harvest ETF (MJ + $0.01 to $10.43): Option volume is running at roughly 18x the daily average of 575 contracts which is primarily being driven by multiple large blocks that simultaneously traded on the December 18^th expiration:

• 10.00 put (volume is 4,000 vs. open interest of 77): Three 1,000 contract blocks traded for $0.90 and a 1,000 contract block traded for $0.85 when the bid/ask spread was $0.85 x $0.90.
• 8.00 put (volume is 4,000 vs. open interest of 27): A 1,000 contract block was sold for $0.22, A 1,000 contract block was sold for $0.23 and a 2,000 contract block was sold for $0.20 when the bid/ask spread was $0.20 x $0.35.  

We know these blocks are new positions based on the respective open interest figures and it appears that one or more $2.00-wide bear put spreads were established here.

Match Group Inc. (MTCH + $2.45 to $108.20): Option volume is running at roughly 6x the daily average of 2,782 contracts which is primarily being driven by a 15.94K contract block that was sold on the October 16^th 90.00 put at the bid price of $0.48 (open interest is 131). We know this block is a new position based on the open interest figure and the put sale suggests that the block trader believes that MTCH will remain above the $90.00 price level (in which the entire $765,120, excluding commissions, would be retained) and/or is comfortable taking a long 1,594,000 share position in the stock at an effective purchase price of $89.52 in the event that it closes below this level at expiration.

Gauging Volatility

The CBOE Volatility Index (VIX + 0.30 to 26.68) has been on both sides of the unchanged line today (intraday range is 24.90-27.19) as equity markets are higher across the board around the mid-day mark today (DJI + 505, SPX + 49, COMPX + 126). VIX option volume has been tepid today (currently missing from the top 10 most actives list) and the activity has been put-biased (the volume put/call ratio is currently 1.27). The most actively traded contract is the October 21^st 28.00 put as volume is 14,843 versus open interest of 72,944.

Shares of Reata Pharmaceuticals Inc. (RETA - $2.11 to $91.72) are moving lower for the fourth consecutive day and average implied volatility has gradually risen over 50% over the past month to an 11-month high of 121%. Note: the average implied volatility represents an estimated value for a 30-day implied volatility at the current underlying price, based on a curve fit of option implied volatilities.                 

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