U.S. stocks are heading toward a strong weekly advance with upbeat earnings and economic data appearing to ease concerns about a sharp slowdown in growth potentially accompanying an extremely elevated inflationary environment. The Financials sector continues to kick off Q3 earnings season with a bang, as Dow member Goldman Sachs joined some of its peers by easily topping expectations as investment banking and trading revenues led the way. Moreover, September retail sales activity came in stronger-than-expected, import prices came in cooler than expected, and business inventories continued to rise, seemingly helping overshadow an unexpected preliminary decline in October consumer sentiment. In other earnings news, J.B. Hunt Transport Services posted stronger-than-expected results. Treasuries are seeing some pressure to lift yields, and the U.S. dollar is dipping. Gold is falling and crude oil prices continue to run. Asia finished higher and Europe is extending yesterday's broad-based advance.
At 10:57 a.m. ET, the Dow Jones Industrial Average is up 0.8%, the S&P 500 Index is rising 0.6%, and the Nasdaq Composite is increasing 0.5%. WTI crude oil is gaining $0.84 to $82.15 per barrel, Brent crude oil is $0.79 higher at $84.79 per barrel. The gold spot price is dropping $23.20 to $1,774.70 per ounce, and the Dollar Index—a comparison of the U.S. dollar to six major world currencies—is dipping 0.1% to 93.89. Natural Gas prices have traded in a range of $5.646-5.964 and were last seen trading lower by $0.114 (or -2.00%) to $5.573/MMBtu.
Source: Schwab Center for Financial Research
Today’s Bullish Activity
- Alcoa Corp. (AA + $6.45 to $55.05): The aluminum mining giant reported Q3 earnings of $2.05, excluding non-recurring items ($0.25 beat) on revenue that rose 31.5% year-over-year to $3.11B (above the $2.92B expected). In addition, the company initiated a $0.10/share quarterly dividend and announced a new $500M share repurchase program. Shares of AA are trading at the highest levels since April of 2018 following the results. Calls are outnumbering puts roughly 2:1 with the October 15th 55.00 call being the most actively traded contract (volume is 10,744).
- Goldman Sachs Group (GS + $9.70 to $400.90): The financial services provider reported Q3 earnings of $14.93 per share, excluding non-recurring items ($4.99 beat) on revenue that rose 26.2% year-over-year to $13.61B (above the $11.61B expected). Today’s ~2.5% jump puts GS above the 50-day Simple Moving Average of $398.62. Calls are outnumbering puts nearly 2:1 with the October 15th 400.00 call leading the way (volume is 7,552).
- J.B. Hunt Transport Services Inc. (JBHT + $9.06 to $184.30): The trucking company reported Q3 earnings of $1.88 per share ($0.10 beat) on revenue that increased 27.2% year-over-year to $3.14B (above the $3.03B expected). Overall intermodal volumes declined 6%, eastern network loads declined 2%, and transcontinental loads declined 9% (all year-over-year). Shares of JBHT hit a 52-week high of $186.35 earlier in the trading session. Calls are outnumbering puts roughly 5:1 with the November 19th 190.00 call topping the most actives list (volume is 2,617).
New 52-week highs (234 new highs today): Ambarella Inc. (AMBA + $6.00 to $173.54), Bank of America Corp. (BAC + $0.80 to $45.88), Salesforce.com Inc. (CRM + $0.33 to $290.35)
Notable Call Activity
Some unusual call activity (~20:1 over puts) is being seen in TripAdvisor Inc. (TRIP + $0.48 to $37.81) as nine out of the top 10 most actively traded contracts are calls. Topping the most actives list is the October 22nd 39.00 call as volume is 5,443 versus open interest of 245, so we know that this primarily represents new positioning. The transactions mostly consisted of various-sized blocks that were being bought at various times for between $0.65 and $0.70 each, which suggests bullish intent. Note: TRIP is slated to report Q3 earnings on November 8th after the bell so this positioning does not capture the potential impact of that event.
Today’s Bearish Activity
Moving lower this morning is Duck Creek Technologies Inc. (DCT - $10.11 to $36.12) after the provider of SaaS-delivered enterprise software to the property and casualty insurance industry reported lackluster results and guidance last night after the bell. The company reported Q4 earnings of $0.02 per share, excluding non-recurring items, on revenue that rose 21.5% year-over-year to $70.85M (versus the $0.02 and $69.09M consensus estimates) and guided Q1 revenue to a range of $68-70M (vs. the $68.8M consensus estimate) and full-year fiscal 2022 revenue to a range of $292-300M (below the $303.5M expected). Concurrent with the earnings release, the company said that Chief Financial Officer Vincent Chippari is retiring on February 22nd 2022 (the company said it has initiated a review of candidates to replace him). Calls are outnumbering puts roughly 3:2 with the October 15th 40.00 call garnering the most attention from traders (volume is 1,618).
Also trading to the downside is Corsair Gaming Inc. (CRSR - $2.44 to $24.54) after the gaming peripherals company issued downside guidance last night after the bell. The company said that Q3 revenue is expected to be $391M and fiscal-year 2021 revenue is expected to come in a range of $1.825-1.925B (below the respective $485.16M and $2.05B consensus estimates). Commenting on the guidance Corsair CEO Andy Paul stated, “Despite this backdrop of growth, we believe that our 2021 net revenue has been held back at least 10% by global logistics and supply chain issues, especially by the lack of affordable GPUs in the retail channel.” Calls are outnumbering puts roughly 2:1 with the February 2022 25.00 call leading the way (volume is 2,869).
New 52-week lows (13 new lows today): Chegg Inc. (CHGG + $0.63 to $62.71), Kronos Bio Inc. (KRON + $0.14 to $16.56), Siyata Mobile Inc. (SYTA - $0.63 to $2.84)
Notable Put Activity
Some unusual put activity (~38:1 over calls) is being seen in the iShares MSCI Hong Kong ETF (EWH + $0.23 to $24.32) which is primarily being driven by a 7,000 contract block that was bought on the November 19th 24.00 put (open interest is 375). We know this block is a new position based on the open interest figure and we can assume the intent is bearish in nature since the trade took place at the ask price.
iShares MSCI India ETF (INDA + $0.12 to $50.53): Puts are outpacing calls ~26:1 as option traders primarily target the November 19th 47.00 put. Volume on this contract is 12,015 versus open interest of 1,027 so we know that this primarily represents new positioning. The activity included several large blocks (2,700, 18,26, 445) that were bought at the ask price of $0.30 and a 5,000 contract block that was bought for $0.29 when the bid/ask spread was $0.25 x $0.30 (all suggesting bearish intent).
Jazz Pharmaceuticals PLC (JAZZ + $2.23 to $139.44): Option volume is running at over 25x the daily average of 297 contracts on this biopharmaceutical company which is primarily being driven by three large blocks that simultaneously traded on the November 19th expiration earlier this morning:
- 150.00 call (open interest is 20) – A 2,610 contract block was sold at the bid price of $2.75.
- 140.00 call (open interest is 80) – A 2,610 contract block was bought at the ask price of $7.20.
- 135.00 put (open interest is 100) – A 2,610 contract block was sold at the bid price of $0.70.
We know these blocks are new positions based on the respective open interest figures and it appears that a (bullish) risk reversal call spread was established for a net debit of $3.75 (x 2,610 contracts x 100 multiplier, excluding commissions), which suggests that the block trader believes that JAZZ will close above the break-even price of $143.75 at expiration.
iShares MSCI Chile ETF (ECH - $0.07 to $23.58): Option volume is running at over 5x the daily average of 591 contracts which is primarily being driven by three fairly large blocks that simultaneously traded on the November 19th expiration earlier this morning:
- 25.00 call (open interest is 435) – A 900 contract block was bought for $0.34 when the bid/ask spread was $0.15 x $0.50.
- 23.00 put (open interest is 930) – A 900 contract block was bought at the ask price of $0.65.
- 20.00 put (open interest is 45) – A 900 contract block was sold at the bid price of $0.05.
Assuming all of these blocks are new positions, it appears that a long strangle was established (using the 25.00 call & 23.00 put), plus a put sell at the 20.00 strike (to help reduce the overcall cost) for a net debit of $0.94 (x 900 contracts x 100 multiplier, excluding commissions), which suggests that the block trader believes that ECH will either close above the upper break-even price of $25.94 or below the lower break-even price of $22.06 at expiration.
Vornado Realty Trust Inc. (VNO + $0.54 to $45.21): Option volume is running at roughly 8x the daily average of 378 contracts on this REIT as option traders primarily target the November 19th 40.00 put. Volume on this contract is 1,116 versus open interest of 617, so we know that we have some new positioning here. 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 bearish intent.
CBOE Volatility Index (VIX - 0.90 to 15.96) is dropping down to the lowest levels since September 2nd (the intraday range is 15.72-16.85) as equity markets are higher across the board around the mid-day mark today (DJI + 303, SPX + 28, COMPX + 58). VIX option volume has been tepid as the index is currently missing from the top 10 most actives list. The most actively traded contract is the October 20th 16.00 put as volume is 112,683 versus open interest of 184,247.
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