Today's Options Market Update

U.S. stocks are mixed as market choppiness continues, with the tech sector pausing after leading the Nasdaq back to record high territory this week, while stocks that had been pressured by the uneasiness regarding the persistent rise in new COVID-19 cases out of the U.S. are rebounding. Gilead Sciences is contributing to the rebound of economic "reopening" stocks after it announced more positive results from a study of its COVID-19 treatment candidate known as Remdesivir. WD-40 missed quarterly expectations, Ford Motor Company warned of supply shortages out of Mexico, and United Airlines has reportedly reached a tentative deal on furloughs and retirement packages. Treasury yields remain lower as bond prices rise and the U.S. dollar has turned lower amid the upbeat virus treatment data, which appears to be countering some of the disappointment from a read on wholesale price inflation. Gold has given up an early gain and crude oil prices have reversed higher. Asia finished broadly lower as China snapped a string of rallies, and Europe is higher on some upbeat data in the region.  

At 11:00 a.m. ET, the Dow Jones Industrial Average is up 0.6% and the S&P 500 Index is gaining 0.3%, while the NASDAQ Composite is declining 0.1%. WTI crude oil is rising $0.42 to $40.04 per barrel, Brent crude oil is increasing $0.48 to $42.83 per barrel, and wholesale gasoline is up $0.02 at $1.27 per gallon. The Bloomberg gold spot price is $0.87 dipping to $1,802.69 per ounce, and the Dollar Index—a comparison of the U.S. dollar to six major world currencies—is declining 0.2% to 96.47. Natural Gas prices have traded in a range of $1.73-1.83 and were last seen trading higher by $0.048 (or + 2.70%) to $1.827/MMBtu.

Source: Schwab Center for Financial Research

Today’s Bullish Activity

Gapping up to a 52-week high this morning is Netflix Inc. (NFLX + $17.24 to $525.00) after Goldman Sachs reiterated their “Conviction Buy” rating on the streaming video giant and raised their price target on the stock to a “street high” $670.00 from $540.00. Goldman analyst Heath Terry said that he expects the company to report Q2 results “well above guidance” while adding at least 12.5M net new subscribers. NFLX is scheduled to report Q2 earnings next Thursday (July 16^th) after the market close. Calls are outnumbering puts better than 3:1 with the July 10^th 525.00 call being the most actively traded contract (volume is 18,899).  

Also trading to the upside this morning is Matson Inc. (MATX + $6.08 to $33.44) after the provider of ocean transportation and logistics services provided upbeat preliminary quarterly results yesterday after the market close. The company said that Q2 revenue is expected to come in a range of $40.5-42.5M (vs. $19.7M in 2019) with net income expected to come in a range of $30.4-32.6M, citing strength in China and the inclusion of additional vessel charters during the quarter. Shares of MATX briefly traded above the 200-day Simple Moving Average ($34.00) earlier this morning but has subsequently pulled back below this indicator. Puts are outnumbering calls roughly 2:1 with the July 17^th 30.00 put topping the most actives list (volume is 278).

Lastly, shares of Greenbrier Co. (GBX + $3.57 to $25.29) are trading higher after the supplier of equipment and services to the global freight transportation markets reported fiscal Q3 earnings of $1.05 per share, excluding non-recurring items ($0.91 beat) on revenue that fell 10.9% year-over-year to $762.6M (above the $606.46M consensus estimate). Calls are outpacing puts roughly 5:1 with the July 17^th 30.00 call seeing the most action from traders (volume is 1,355).

New 52-week highs (65 new highs today): Amazon.com Inc. (AMZN + $4.59 to $3,187.22), Electronic Arts Inc. (EA + $0.77 to $139.57), Nvidia Corp. (NVDA + $0.87 to $421.23), Zoom Video Communications Inc. (ZM + $3.71 to $273.23)

Notable Call Activity

Some unusual call activity (~20:1 over puts) is being seen in HP Inc. (HPQ + $0.47 to $16.88) as option traders primarily target two near-term contracts - the July 24^th 17.50 call (volume is 4,633 vs. open interest of 109) and the July 31^st 18.00 call (volume is 4,001 vs. open interest of 21,250). The bulk of the activity on the 17.50 call consisted of various-sized blocks that were being bought for between $0.41-0.45 each, including a 2,000 contract block that was bought at the ask price of $0.45 (suggesting bullish intent).   

Today’s Bearish Activity   

Moving lower this morning is WD-40 Co. (WDFC - $9.28 to $191.22) after the maker of household products reported net income of $1.06 per share ($0.01 miss) on revenue that fell 13.9% to $98.2M (below the $101.2M expected). Puts are slightly outnumbering calls with the July 17^th 185.00 put being the most actively traded contract (volume is 184).

Also trading to the downside is Beyond Meat Inc. (BYND - $6.72 to $134.50) after Citigroup started coverage on the plant-based meat producer with a “Sell” rating and put a $123.00 price target on the stock. The brokerage said it expects the company to face near-term pressure due to its exposure to the food-service industry and competitive forces in the longer-term. Today’s ~5% drop puts the stock below its 50-day SMA of $136.98. Calls are slightly outnumbering puts but the July 10^th 130.00 put is the most actively traded contract (volume is 3,779).

New 52-week lows (11 new low today): ANI Pharma Inc. (ANIP - $0.46 to $25.92), Echostar Corp. (SATS + $0.49 to $25.07), J2 Global Inc. (JCOM + $0.20 to $58.14)

Notable Put Activity

Some unusual put activity (~38:1 over calls) is being seen in the SPDR S&P Biotech ETF (XBI - $0.50 to $115.60) which is primarily being driven by three large blocks that simultaneously traded on the October 16^th expiration earlier this morning:

• 60.00 put (open interest is 14): A 10K block was bought for $0.09 when the bid/ask spread was $0.00 x $0.15.
• 80.00 put (open interest is 3,943): A 20K block was sold for $0.82 when the bid/ask spread was $0.80 x $0.90.
• 100.00 put (open interest is 2,807): A 10K block traded for $3.90 when the bid/ask spread was $3.80 x $4.00.

We know these blocks are new positions based on the respective open interest figures and it appears that a long butterfly strategy was established for a net debit of $2.35 (x 10,000 contracts x 100 multiplier, excluding commissions) which suggests that the block trader believes that XBI will close in between the lower break-even price of $62.35 and the upper break-even price of $97.65 by the expiration date, which theoretically has a 31.79% chance of occurring as you can see in the Trade & Probability Calculator from Street Smart Edge below:

Source: StreetSmart Edge®

Volume Signals     

Miller Herman Inc. (MLHR - $0.02 to $20.93): Option volume is running at over 80x the daily average of 196 contracts which is primarily being driven by some block trades that simultaneously occurred on three contracts earlier this morning:

• November 20^th 30.00 call (open interest is 5,372): A 3,928 contract block traded for $0.90 when the bid/ask spread was $0.60 x $1.20.
• November 20^th 40.00 call (open interest is 4,504): A 3,928 contract block traded for $0.20 when the bid/ask spread was $0.00 x $0.45.
• February 2021 25.00 call (open interest is 213): A 3,928 contract block was bought for $2.73 when the bid/ask spread was $2.20 x $3.00.

Based on the respective open interest figures, it appears that a previously held November 30.00/40.00 bull call spread was closed out and a long call position on the February 2021 25.00 calls was simultaneously established.

Cleveland-Cliffs Inc. (CLF + $0.42 to $5.41): Option volume is running at over 6x the daily average of 8,328 as option traders primarily target the July 31^st 6.00 call. Volume on this contract is 34,084 versus open interest of 487, 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 at the ask prices of $0.25 and $0.26 each, which suggests bullish intent.

Itau Unibanco Holdings Inc. (ITUB - $0.01 to $5.04): Option volume is running at roughly 5x the daily average of 6,399 which is primarily being driven by activity on the September 18^th 6.00 call. Volume on this contract is 31,142 versus open interest of 6,451, so we know that this primarily represents new positioning. Over 50% of the volume on this contract is being attributed to a 15.67K contract block that was bought for $0.20 when the bid/ask spread was $0.14 x $0.21, which suggests bullish intent.  

Gauging Volatility

The CBOE Volatility Index (VIX - 0.76 to 28.48) has been on both sides of the unchanged line today (intraday range is 28.17-30.91) as equity markets are mixed around the mid-day mark today (DJI + 164, SPX + 9, COMPX - 12). VIX option volume has been tepid today (currently missing from the top 10 most actives list) and the activity has been call-biased (the volume put/call ratio is currently 0.59). The most actively traded contract is the August 19^th 90.00 call as volume is 13,872 versus open interest of 25,374.

Shares of Tesla Inc. (TSLA + $24.27 to $1,418.55) are no stranger to volatility but option premiums have been inflating this week as the stock has broken out to all-time highs. TSLA average implied volatility is currently 94% after closing at 68% last week. 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.