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Today's Options Market Update

Stocks mostly higher as Q1 earnings season gets underway.

U.S. stocks are mostly higher but not to far from the unchanged mark as the Street digests upbeat results from Dow members JPMorgan Chase & Co and Goldman Sachs, along with Wells Fargo as Q1 earnings season unofficially commences. However, Treasuries are dipping putting some upward pressure on yields, following another hotter-than-expected read on March inflation, courtesy of import prices. The U.S. dollar is modestly extending a recent rollover and crude oil prices are higher, while gold is trading lower. A read on business activity across the nation is due out in afternoon action by the Fed. Asia finished mixed as China and Hong Kong led the way, though Japan declined, and Europe is diverging as earnings season shoves off.

At 12:35 p.m. ET, the Dow Jones Industrial Average is up 0.4%, the S&P 500 Index is rising 0.1%, while the Nasdaq Composite is 0.2% lower. WTI crude oil is gaining $2.64 to $62.82 per barrel and Brent crude oil is advancing $2.57 to $66.24 per barrel. The Bloomberg gold spot price is trading $6.34 lower at $1,739.17 per ounce, and the Dollar Index—a comparison of the U.S. dollar to six major world currencies—is dipping 0.1% to 91.72. Natural Gas prices have traded in a range of $2.616-2.666 and were last seen trading higher by $0.018 (or +0.69%) to $2.637/MMBtu.

Source: Schwab Center for Financial Research

Today’s Bullish Activity

Moving higher this morning is Goldman Sachs Group (GS + $15.47 to $341.15) after the banking and financial services giant reported Q1 earnings of $18.60 per share ($9.67 beat) on revenue that rose 102.4% year-over-year to $17.7B (well above the $11.74B consensus estimate). Goldman’s investment banking generated record quarterly net revenue of $3.77B, net revenue in Global Markets increased 47% year-over-year to $7.58B, while net revenue in asset management came in at $4.61B. The company’s allowance for credit losses was $4.24B as of March 31st 2021. Calls are outpacing puts roughly 4:1 with the April 16th 340.00 call garnering the most attention from traders (volume is 10,545).

Also trading to the upside is SAP SE (SAP + $11.91 to $246.75) after the German enterprise software giant reported Q1 earnings of €0.88 (€0.39 beat) on revenue that declined 3% year-over-year to €6.35B (above the €6.3B expected) as cloud revenue increased 7% year-over-year to €2.15B. Looking ahead, the company said that it expects fiscal-year 2021 cloud revenue to come in a range of €9.2-9.5B (vs. a prior forecast of €9.1-9.5B) and fiscal-year 2021 cloud and software revenue to come in a range of €23.4-23.8B (vs. a prior forecast of €23.3-23.8B). Shares of SAP gapped up above the 200-day Simple Moving Average (SMA) of $138.09 at the open but encountered some subsequent selling pressure and were below this indicator at the time of this writing. Calls are outpacing puts roughly 100:1 with the April 16th 140.00 call leading the way (volume is 417).

 

New 52-week highs (181 new highs today): Burlington Stores Inc. (BURL + $4.38 to $329.72), Cigna Corp. (CI + $4.83 to $250.09), Home Depot Inc. (HD + $0.27 to $320.67)

Notable Call Activity

Suncor Energy Inc. (SU + $0.96 to $21.57): Calls are outpacing puts ~100:1 as option traders primarily target the January 2023 35.00 call as volume is 5,007 vs. open interest of 8,306. The bulk of the activity on this contract consisted of various mid -sized blocks that were being bought at the ask price of $1.50. It’s likely that these trades represent new (bullish) positioning given the expiration date, but we can’t be sure given the open interest figure.   

Box Inc. (BOX + $0.62 to $21.83): Calls are outpacing puts ~100:1 which is primarily being driven by activity on the December 17th 27.00 call (volume is 5,597 vs. open interest of 5,505). The bulk of the activity on this contract consisted of various mid -sized blocks that were being bought at the ask price of $1.45. It’s likely that these trades represent new (bullish) positioning given the expiration date, but we can’t be sure given the open interest figure.   

Today’s Bearish Activity    

Gapping down to a three-month low this morning is Bed Bath & Beyond Inc. (BBBY - $3.79 to $24.14) after the home goods retailer reported fiscal Q4 earnings of $0.40 per share ($0.09 beat) on revenue that fell 15.7% year-over-year to $2.62B (below the $2.65B expected). Looking ahead, BBBY said that Q1 revenue is expected to be “at least $1.83B” (vs. the $1.92B consensus estimate) and guided fiscal-year 2022 revenue to a range of $8.0-8.2B (vs. the $8.19B consensus estimate). Lastly, the company said that it is increasing its three-year share repurchase authorization program to $1B from $825M, which includes an increase of $25M to $325M for fiscal-year 2021. Calls are outnumbering puts roughly 3:2 but the April 16th 24.00 put being the most actively traded contract (volume is 8,613).  

Also trading to the downside is Stitch Fix Inc. (SFIX - $1.83 to $47.65) following news that founder and Chief Executive Officer (CEO) Katrina Lake is stepping down and being replaced by President Elizabeth Spaulding. Lake said that she will assume the role of executive chairperson of the Board of Directors.    Shares of SFIX are trading roughly 4% above the 200-day SMA of $45.90. Calls are outnumbering puts roughly 4:1 with the June 18th 60.00 call seeing the most action from traders (volume is 477).

 

New 52-week lows (12 new lows): Aspen Group Inc. (ASPU - $0.22 to $5.40), Cootek Cayman Inc. (CTK - $0.01 to $2.20), Lannett Co. Inc. (LCI + $0.07 to $4.93)

Notable Put Activity  

Some unusual put activity is being seen in Discovery Inc. (DISCK - $1.40 to $33.38) which is primarily being driven by a couple of fairly large blocks that simultaneously traded on the June 18th expiration earlier this morning:

  • 32.50 put (open interest is 15,491): A 20,000 contract block was bought for $2.32 when the bid/ask spread was $2.05 x $2.40.
  • 25.00 put (open interest is 305): A 20,000 contract block was sold for $0.32 when the bid/ask spread was $0.30 x $0.35.

We know these blocks are new positions based on the respective open interest figures and it appears that the block trader established a $7.50-wide bear put spread for a net debit of $2.00 (x 20,000 contracts x 100 multiplier, excluding commissions) which suggests that the block trader believes that DISCK will close below the break-even price of $30.50 at expiration. Shares of DISCK are trading lower this morning following a CNBC report that Credit Suisse priced a 22M share block sale at $32.35.

Volume Signals       

Provention Bio Inc. (PRVB + $0.54 to $8.30): Option volume is running at roughly 18x the daily average of 889 contracts which is primarily being driven by a couple of large blocks that simultaneously traded on the May 21st expiration earlier this morning:

  • 7.50 put (open interest is 999): A 5,000 contract block was sold at the bid price of $0.50.
  • 10.00 call (open interest is 1,013): A 5,000 contract block was sold at the bid price of $0.35.

We know these blocks are new position and it appears that a short strangle was established for a net credit of $0.85 (x 5,000 contracts x 100 multiplier, excluding commissions), which suggests that the block trader believes that PRVB will close in-between $7.50 and $10.00 at expiration. Note: PRVB is slated to report Q1 earnings on May 4th before the market opens, so this positioning captures the potential impact of that event.  

Ericsson (ERIC - $0.20 to $13.78): Option volume is running at roughly 6x the daily average of 3,550 contracts as option traders primarily target the January 2022 15.00 call. Volume on this contract is 10,679 (vs. open interest of 37,705), which mostly consisted of various mid-sized blocks that were being bought at various times for between $1.18 and $1.20 each. It’s likely that these trades represent new (bullish) positioning given the expiration date, but we can’t be sure given the open interest figure.   

New Oriental Education Inc. (EDU + $0.18 to $14.79): Option volume is running at roughly 4x the daily average of 4,590 contracts as option traders primarily target the May 21st 15.00 call. Volume on this contract is 16,354 versus open interest of 2,579, so we know that this primarily represents new positioning. The bulk of the activity consisted of various-sized blocks that were being bought at various times for between $0.80 and $0.90 each, including a 5K contract block that was bought at the ask price of $0.80, which suggests bullish intent. Note: EDU is scheduled to report fiscal Q3 earnings on April 20th before the market opens, so this positioning captures the potential impact of that event.

Gauging Volatility

The CBOE Volatility Index (VIX + 0.21 to 16.86) has been on both sides of the unchanged line today (the intraday range is 15.38-17.08) as equity markets are mixed around the mid-day mark today (DJI + 204, SPX + 4, COMPX - 24). VIX option volume has been average today at 283,726 contracts (#8 on the top 10 most actives list) and the activity has been definitively call-biased (the put/call volume ratio is currently 0.20). However, the most actively traded contract is the May 19th 20.00 put as volume is 45,421 versus open interest of 128,999.     

GSX Techedu Inc. (GSX + $1.00 to $25.92): Average implied volatility is up 42 ticks (from 131% to the current 173%) over the past five trading days. 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.

What You Can Do Next

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The information provided here is for general informational purposes only and should not be considered an individualized recommendation or personalized investment advice. All expressions of opinion are subject to change without notice in reaction to shifting market conditions.

This material includes information obtained from third-party sources and believed to be reliable, but its accuracy or completeness is not guaranteed. All corporate names and market data shown above are for illustrative purposes only and are not a recommendation, offer to sell, or a solicitation of an offer to buy any security. All references to subjects (securities, indexes, futures contracts, and options contracts) were derived based on screens conducted by the writer for certain anomalous activity such as volumes, volatility and other related market data. As needed for brevity, the writer may have applied discretion when choosing among screen outputs for inclusion. Such discretion may have been based on news reports or other considerations of public interest. The views or opinions are those of the writer, and are subject to change without notice. All referenced subjects were chosen for illustrative purposes only and should not be considered recommendations, offers to sell, or solicitations of offers to purchase. Schwab Center for Financial Research ("SCFR") is a division of Charles Schwab & Co., Inc. The investment information mentioned here may not be suitable for everyone. Each investor needs to review an investment strategy for his or her own particular situation before making any investment decision. Past performance is no guarantee of future results.

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