Today's Options Market Update

U.S. stocks are lower in the final session of the month as the markets continue to grapple with the festering Delta variant uncertainty, China's recent crackdown on big companies, and a flood of earnings and economic data as the busy week concludes. As the busiest week of earnings season comes to a close, Amazon.com's miss on revenues and softer-than-expected guidance are weighing heavily on its shares, the Consumer Discretionary sector and the broader markets. The Street is cheering results from Procter & Gamble even as the company warned of higher commodity cost headwinds, while Dow members Chevron missed revenue forecasts and Caterpillar noted supply chain challenges and higher manufacturing costs. The economic front offered some upbeat data points, with personal income and spending topping estimates and Chicago manufacturing growth surprisingly accelerating, while consumer sentiment was revised higher but still below the prior month's level. Treasuries are gaining ground to apply downside pressure on yields and the U.S. dollar is higher. Crude oil prices are subdued and gold is lower. Asia closed out a choppy week to the downside and Europe is mostly lower after a two-day winning streak amid the persistent Delta uncertainty and the recent China crackdown.

At 10:58 a.m. ET, the Dow Jones Industrial Average is declining 0.4%, the S&P 500 Index is decreasing 0.5%, and the Nasdaq Composite is falling 0.7%. WTI crude oil is ticking $0.02 higher to $73.64 per barrel, Brent crude oil is dipping $0.09 to $75.01 per barrel. The gold spot price is trading $9.40 lower to $1,826.40 per ounce, and the Dollar Index—a comparison of the U.S. dollar to six major world currencies—is rising 0.3% to 92.16. Natural Gas prices have traded in a range of $3.855-4.055 and were last seen trading lower by $0.174 (or -4.29%) to $3.885/MMBtu.

Source: Schwab Center for Financial Research

Today’s Bullish Activity

Multiple names are moving higher following upbeat earnings announcements:

• Atlassian Corp. (TEAM + $64.84 to $331.63): The Australian workflow management software company reported fiscal Q4 earnings of $0.24 per share, excluding non-recurring items ($0.06 beat) on revenue that increased 30.0% year-over-year to $559.54M (above the $525.31M expected). The company issued upside guidance as Q1 EPS is expected to be $0.38-0.39 on revenue that is expected to come in a range of $575-590M (vs. the respective $0.31 and $541.29M consensus estimates). Shares of TEAM are trading at all-time highs following the results. Calls are outnumbering puts roughly 7:1 with the December 17^th 280.00 call being the most actively traded contract (volume is 9,816).
• DexCom Inc. (DXCM + $54.30 to $510.35): The maker of continuous glucose monitors reported Q2 earnings of $0.76 per share, excluding non-recurring items ($0.32 beat) on revenue that increased 31.7% year-over-year to $595.1M (above the $551.66M expected). In addition, the company raised its full-year 2021 revenue guidance to a range of $2.35-2.40B from a prior view of $2.26-2.36B. Shares of DXCM are trading at all-time highs following the results. Calls are outpacing puts roughly 4:1 with the August 20^th 550.00 call topping the most actives list (volume is 1,086).
• KLA Corp. (KLAC+ $22.82 to $342.25): The semiconductor equipment maker reported fiscal Q4 earnings of $4.43 per share, excluding non-recurring items ($0.43 beat) on revenue that rose 31.9% year-over-year to $1.93B (above the $1.88B expected). Looking ahead, the company said that Q1 EPS is expected to come in a range of $4.01-4.89 on revenue that is expected to come in a range of $1.92-2.12B versus the respective $4.14 and $1.91B consensus estimates. Calls are outpacing puts roughly 11:1 with the July 30^th 370.00 call being the most actively traded contract (volume is 297).

New 52-week highs (171 new highs today): Autonation Inc. (AN + $0.60 to $121.46), Chipotle Mexican Grill Inc. (CMG + $6.72 to $1,852.87), Resmed Inc. (RMD + $2.01 to $271.74)

Notable Call Activity

Some unusual call activity (~30:1 over puts) is being seen in Gogo Inc. (GOGO + $0.31 to $10.52) as option traders primarily target the August 20^th 8.00 call. Volume on this contract is 10,897 versus open interest of 359, so we know that this primarily represents new positioning. The bulk of the transactions on this contract consisted of various mid-sized blocks that were being bought at various times for between $2.55-2.65 each, which suggests bullish intent.

ProShares UltraPro Short S&P 500 (SPXU + $0.21 to $16.80): Calls are outpacing puts roughly 100:1 which is primarily being driven by some spread activity on the August 6^th expiration:

• 16.00 call (open interest is 12,002): A 9,989 contract block was bought for $0.84 when the bid/ask spread was $0.79 x $0.86 and (at a different time) a 4,000 contract block was bought for $0.75 when the bid/ask spread was $0.70 x $0.79.
• 17.50 call (open interest is 1,854): A 9,989 contract block was sold for $0.16 and (at a different time) a 4,000 contract block was sold for $0.13.

Assuming these blocks are new positions, it appears that two $1.50-wide bull call spreads were established here, which would indicate that the block trader(s) is bearish on the S&P 500 over the next week (since this is a 3x short fund).

Today’s Bearish Activity    

A couple of stocks are trading to the downside following quarterly earnings announcements:

• Amazon.com Inc. (AMZN - $239.95 to $3,359.97): The e-commerce giant reported Q2 earnings of $15.12 per share ($2.88 beat) on revenue that rose 27.6% year-over-year to $113.08B (below the $115.08B expected). Amazon Web Services (AWS) sales rose 37% year-over-year to $14.81B while operating income rose 32% year-over-year to $7.70B (below the $7.80B consensus estimate). The company issued downside guidance as Q3 revenue is expected to come in a range of $106-112B (below the $118.72B consensus estimate) and Q3 operating income is expected to come in a range of $2.5-6.0B (below the $8.18B expected). Calls are outnumbering puts roughly 3:2 with the July 30^th 3400.00 call being the most actively traded contract (volume is 26,292).
• Pinterest Inc. (PINS - $13.03 to $59.01): The image sharing platform reported Q2 earnings of $0.25 per share, excluding non-recurring items ($0.12 beat) on revenue that rose 125.0% year-over-year to $613.21M (above the $562.12M expected) as global monthly active users grew 9% year-over-year to 454M (below the 487M analysts had expected). Calls are slightly outnumbering puts but the July 30^th 55.00 put is the most actively traded contract (volume is 11,811).
• Zendesk Inc. (ZEN - $20.45 to $130.07): The enterprise software company reported a Q2 GAAP loss of $0.49 per share ($0.09 miss) on revenue that rose 29% year-over-year to $318.2M (below the $320.6M expected). The company issued in-line guidance as Q3 revenue is expected to come in a range of $332-337M (vs. the $335.8M expected) and full-year 2021 revenue is expected to come in a range of $1.31-1.318B (vs. the $1.314B consensus estimate). Shares of ZEN are trading at a two-month low and below the 200-day Simple Moving Average (SMA) of $137.94. Calls are outnumbering puts roughly 5:3 but the August 20^th 145.00 put is the most actively traded contract (volume is 1,380).

New 52-week lows (36 new low): Akero Therapeutics Inc. (AKRO - $0.81 to $20.83), Credicorp Ltd. (BAP - $17.83 to $102.86), Kemper Corp. (KMPR - $4.85 to $63.63)

Notable Put Activity

Some unusual put activity (~100:1 over calls) is being seen in Bank of Montreal (BMO - $1.57 to $99.80) which is primarily being driven by two large blocks that simultaneously traded on the March 2022 expiration earlier this morning:

• 100.00 put (open interest is 0): A 5,000 contract block was sold at the bid price of $6.50.
• 80.00 put (open interest is 1,000): A 5,000 contract block traded for $1.27 when the bid/ask spread was $1.15 x $1.35.

We know these blocks are new positions based on the respective open interest figures and since the block trade on the 100.00 put took place at the bid price, it appears that a $20.00-wide bull put spread was established for a net credit of $5.23 (x 5,000 contracts x 100 multiplier, excluding commissions), which suggests that the block trader believes that BMO will close above the break-even price of $94.77 at expiration.

Volume Signals       

TC Energy Corp. (TRP - $0.90 to $48.39): Option volume is running at roughly 70x the daily average of 143 contracts which is primarily being driven by two large blocks that simultaneously traded on the February 2022 expiration earlier this morning:

• 50.00 put (open interest is 57): A 5,000 contract block was sold at the bid price of $3.70.
• 40.00 put (open interest is 17): A 5,000 contract block traded for $0.75 when the bid/ask spread was $0.55 x $4.20.

We know these blocks are new positions based on the respective open interest figures and since the block trade on the 50.00 put took place at the bid price, it appears that a $10.00-wide bull put spread was established for a net credit of $2.95 (x 5,000 contracts x 100 multiplier, excluding commissions), which suggests that the block trader believes that TRP will close above the break-even price of $47.05 at expiration.

Masco Corp. (MAS + $1.10 to $59.76): Option volume is running at roughly 30x the daily average of 435 contracts which is primarily being driven by two large blocks that simultaneously traded on the October 15^th expiration earlier this morning:

• 60.00 call (open interest is 712): A 3,000 contract block was bought at the ask price of $2.30.
• 55.00 put (open interest is 131): A 3,000 contract block was sold for $0.90 when the bid/ask spread was $0.85 x $1.10.

We know these blocks are new positions based on the respective open interest figures and it appears that a (bullish) risk reversal was established for a net debit of $1.40 (x 3,000 contracts x 100 multiplier, excluding commissions), which suggests that the block trader believes that MAS will close above the break-even price of $61.40 at expiration.

Texas Roadhouse Inc. (TXRH - $6.08 to $92.55): Option volume is running at roughly 12x the daily average of 1,709 contracts which is primarily being driven by an 8,761 contract block that was bought on the December 17^th 95.00 call at the ask price of $8.00 (open interest is 20). We know this block is a new position given the open interest figure and we can assume the intent is bullish in nature since the trade took place at the ask price.   

Enbridge Inc. (ENB - $0.34 to $39.28): Option volume is running at roughly 8x the daily average of 1,464 contracts which is primarily being driven by two large blocks that simultaneously traded on the January 2022 expiration earlier this morning:

• 40.00 put (open interest is 430): A 6,000 contract block traded for $3.08 when the bid/ask spread was $3.00 x $3.30.
• 30.00 put (open interest is 2,804): A 6,000 contract block was sold at the bid price of $0.15.

We know these blocks are new positions based on the respective open interest figures and since the block trade on the 30.00 put took place at the bid price, it appears that a $10.00-wide bear put spread was established for a net debit of $2.93 (x 6,000 contracts x 100 multiplier, excluding commissions), which suggests that the block trader believes that ENB will close below the break-even price of $37.07 at expiration.

Gauging Volatility

The CBOE Volatility Index (VIX + 0.32 to 18.02) has been on both sides of the unchanged line today (the intraday range is 17.53-19.72) as equity markets are lower around the mid-day mark today (DJI – 120, SPX - 17, COMPX - 80). VIX option volume has been tepid today as the index is currently missing from the top 10 most actives list. The most actively traded contract is the February 16^th 2022 65.00 call as volume is 50,021 versus open interest of 152.   

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.