Today's Options Market Update

U.S. stocks are mixed and near the unchanged mark as conviction appears to be getting stymied ahead of this afternoon's monetary policy decision from the Fed. The announcement will come as uncertainty remains regarding rising inflation pressures and the timing of when the Fed may begin to taper monthly asset purchases. A host of global economic data is being digested, with reports out of China and Japan mixed, while U.K. consumer price inflation came in hotter than expected. The reports were followed by U.S. releases showing housing construction activity was below forecasts, import prices topped estimates and mortgage applications rebounded. Treasuries are little changed, along with the U.S. dollar, while gold is dipping and crude oil prices are higher. In equity news, Oracle topped Q4 earnings estimates but offered disappointing Q1 guidance, while Citigroup was the latest bank to warn of lower trading revenues in Q2. Asia finished mixed and Europe is diverging amid the caution ahead of the Fed. 

At 10:48 a.m. ET, the Dow Jones Industrial Average is dipping 0.1%, while the S&P 500 Index is little changed and the Nasdaq Composite is rising 0.2%. WTI crude oil is increasing $0.32 to $72.44 per barrel, Brent crude oil is rising $0.65 to $74.64 per barrel. The Bloomberg gold spot price is trading $3.00 lower to $1,856.02 per ounce, and the Dollar Index—a comparison of the U.S. dollar to six major world currencies—is little changed at 90.50. Natural Gas prices have traded in a range of $3.187-3.265 and were last seen trading +$0.022 (or +0.74%) to $3.262/MMBtu.

Source: Schwab Center for Financial Research

Today’s Bullish Activity

Below are some of the stocks moving higher this morning:

• Zscaler (ZS +$8.96 to $216.35): The cloud-based cybersecurity company is one of today’s top gainers after receiving a couple of analyst upgrades. Mizuho Securities raised its price target from $215 to $225 and reiterated its “Buy” rating. Mizuho said it expects ZS to “thrive in an increasingly digital-enabled world” and it sees healthy upside into other opportunities including 5G infrastructure. JMP Securities raised its price target from $200 to $240 and maintained its “Outperform” rating. Calls are outnumbering puts roughly 20:1 with the June 18^th 220 call being the most actively traded contract (volume is 1,040).
• Humana (HUM +$8.75 to $433.46): The healthcare giant announced yesterday that after an 11-year partnership, it has received a new 4-year contract extension from the West Virginia Public Employee’s Insurance Agency, to continue providing health insurance to its 54k retirees. Separately, HUM announced that its independent subsidiary, CenterWell Senior Primary Care, will be opening 4 new facilities in South Louisiana by 2022, focused on holistic care. Calls are outnumbering puts roughly 40:1 with the June 18^th 425 call being the most actively traded contract (volume is 108).

New 52-week highs (20 new highs today): Alexion Pharmaceutical (ALXN +$0.64 to $182.54), Pepsico Inc. (PEP -$0.04 to $148.55), Philip Morris (PM +$0.09 to $100.55), Rockwell Automation (ROK +$1.10 to $285.11), Exxon Mobil (XOM -$0.05 to $64.26)

Notable Call Activity

Some unusual call activity is being seen today in Petroleo Brasileiro (PBR +$0.11 to $11.81) and it is mostly due to the following block trades:

• 07/09/2021 13.00 calls: 54,500 contracts traded at $0.11 when the bid/ask spread was $0.10 - $0.12 (open interest is 245)
• 07/09/2021 14.00 calls: 54,500 contracts traded at $0.03 when the bid/ask spread was $0.02 - $0.04 (open interest is 2)

We know that both legs of this spread are new positions based on the open interest figures, but given that both sides traded exactly in the middle of the spread, we can’t determine whether this was a bullish (debit) spread or a bearish (credit) spread.

At a later time, the following additional (single-leg) orders were also seen in the 07/09/2021 13.00 calls:

• 18,500 contracts traded at $0.11 when the bid/ask spread was $0.10 - $0.12
• 36,000 contracts traded at $0.10, but this one was reported late, so we don’t know what the bid/ask spread was when it executed.

Since this data is inconclusive, we also cannot determine the intent on these block trades. The 07/09/2021 13.00 calls are also the most actively traded option contract in the marketplace today.

Today’s Bearish Activity    

Below are some of the stocks moving lower this morning:

• Oracle Corporation (ORCL -$5.60 to $76.05): The IT infrastructure company reported adjusted Q4 EPS of $1.54, versus the $1.31 estimate, as revenues grew 8.0% y/o/y to $11.2B, topping the street's forecast of $11.0B. The company noted that its multi-billion Fusion and NetSuite cloud applications businesses saw dramatic increases in their "already rapid revenue growth rates." However, ORCL issued fiscal Q1 EPS guidance that was below forecasts as it noted increased capital expenditures on its cloud businesses. ORCL shares have fallen below the 50-day SMA today for the first time in 4 months. Puts are outnumbering calls roughly 10:9 with the June 18^th 75.00 put topping the most actives list (volume is 12,222).
• Citigroup Inc. (C -$2.65 to $71.16): The financial giant warned that Q2 trading revenue is likely to be down in the low 30% range and it sees U.S. consumer revenues declining at a similar rate seen in Q1. C added that it expects loan loss reserves to be released in Q2 but less than in Q1. C shares have fallen below the 100-day SMA today for the first time in 7 months. Calls are outnumbering puts roughly 3:2 with the January 21^st 90.00 call being the most actively traded contract (volume is 20,351).

New 52-week lows (10 new lows): Autohome Inc. (ATHM -$0.57 to $65.16), Proto Labs (PRLB -$0.46 to $84.41), Dun and Bradstreet (DNB -$0.10 to $20.65)

Notable Put Activity  

Some unusual option activity (about 30x normal levels) is being seen in Aramark (ARMK -$0.04 to $37.51) which is primarily being driven by activity on the July 16^th 35 puts (open interest is 3,803). 1,140 contracts were sold at $0.35 and at the same time 1,710 contracts were sold at $0.40, when the bid/ask spread was $0.35 - $0.50.

While the expiration date would imply it, we can’t be certain these blocks are new positions, due to the open interest figure. However, if these are new short put positions, it suggests that the block trader believes that ARMK will close above $35 at expiration, and/or is comfortable taking on a 285k long stock position at the effective price of $34.62 (excluding commissions) if it closes below $35 at expiration.  

Volume Signals       

Itau Unibanco Holdings (ITUB +$0.07 to $6.53): With option volume that is about 5x normal levels, the Brazil-based bank holding company is number 9 on the top 10 most actives list today, and it is mostly due to some heavy volume on the following 3 contracts:

• 07/16/2021 7.00 calls: volume is 79,387 versus open interest of 125,600
• 06/18/2021 7.00 calls: volume is 64,749 versus open interest of 40,568
• 07/16/2021 8.00 calls: volume is 47,364 versus open interest of 114,756

The first 2 options above are also the 4^th and 8^th most actively traded contracts in the marketplace today. Most of the activity on all 3 of these contracts appears to be buy orders (including several medium and large block trades) at or near various ask prices, which implies bullish sentiment.

Gauging Volatility

The CBOE Volatility Index (VIX +0.21 to 17.23) has been on both sides of the unchanged line today (the intraday range is 16.42-17.02) as equity markets are lower around the mid-day mark today (DJI -102, SPX -11, COMPX -25). VIX option volume has been about average today at 336,962 contracts (#9 on the top 10 most actives list). The most actively traded contract is the July 21^st 15.00 put as volume is 40,599 versus open interest of 115,474.

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.