Today's Options Market Update

U.S. stocks are trimming yesterday's drop that came amid lingering fears of the spreading of the coronavirus, with jumps in Consumer Confidence and regional manufacturing output helping aid the recovery. The markets are digesting some mixed earnings reports from Dow members 3M, United Technologies and Pfizer, along with Harley-Davidson, while the Fed is set to begin its two-day monetary policy meeting today. Treasury yields are recovering a bit from some recent weakness, shrugging off softer-than-expected core components of durable goods orders. The U.S. dollar and crude oil prices are higher, while gold is seeing some pressure. Asia finished mostly lower but markets in China and Hong Kong remained closed for holidays, and Europe is rebounding.

At 10:49 a.m. ET, the Dow Jones Industrial Average is up 0.7%, the S&P 500 Index is rising 1.0%, and the NASDAQ Composite is advancing 1.2%. WTI crude oil is gaining $0.63 to $53.77 per barrel, Brent crude oil is increasing $0.58 at $59.16 per barrel, and wholesale gasoline is $0.03 higher at $1.52 per gallon. The Bloomberg gold spot price is dropping $13.28 at $1,568.78 per ounce, and the Dollar Index—a comparison of the U.S. dollar to six major world currencies—is moving 0.2% higher to 98.14. Natural Gas prices have traded in a range of $1.88-1.94 and were last seen trading higher by $0.038 (or + 2.00%) to $1.94/MMBtu.

Source: Schwab Center for Financial Research

Today’s Bullish Activity

Leading the point gainers list this morning is Acceleron Pharma Inc. (XLRN + $24.41 to $77.28) after the biotech company said that its experimental treatment (sotatercept) for pulmonary arterial hypertension achieved the primary and secondary endpoints in the PULSAR Phase 2 placebo-controlled trial. Acceleron said that sotatercept showed significant reduction in pulmonary vascular resistance versus the placebo at the week 24 marker. Shares of XLRN are trading at all-time highs following the news. Puts are outnumbering calls better than 3:1 with the February 21^st 75.00 put topping the most actives list (volume is 657). 

Several stocks are moving higher following upbeat earnings announcements:

• Polaris Inc. PLC (PII + $5.57 to $96.55): The maker of power sports vehicles reported Q4 earnings of $1.83 per share ($0.04 beat) on revenue that rose 6.7% year-over-year to $1.74B (below the $1.76B expected). Looking ahead, the company said it expects full-year 2020 EPS to come in a range of $6.80-7.05 (better than the $6.73 consensus estimate) on revenue of $6.918-7.054B (below the $7.08B consensus estimate). Puts are outnumbering calls roughly 3:1 with the February 21^st 90.00 put seeing the most action from traders (volume is 1,633).
• Whirlpool Corp. (WHR + $6.15 to $154.39): The appliance maker reported Q4 earnings of $4.91 per share ($0.64 beat) on revenue that fell 4.9% year-over-year to $5.38B (below the $5.52B expected). North American net sales were $3.1B (vs. $3.1B in the year-ago quarter) and North American EBIT was $410M compared to $376M in the year-ago quarter). The company issued in-line guidance as full-year 2020 EPS is expected to come in a range of $16.00-17.00 (vs. the $16.34 consensus estimate) with free cash flow expected to come in a range of $800-900M. Calls are outnumbering puts roughly 2:1 with the January 31^st 150.00 call topping the most actives list (volume is 1,930).
• Xerox Holdings Corp. (XRX + $1.83 to $36.88): The document management and solutions company reported Q4 earnings of $1.33 per share ($0.24 beat) on revenue that fell 2.2% year-over-year to $2.44B (slightly above the $2.43B expected) as operating margins improved 270 basis points to 16.8%. In terms of guidance, the company said it expects full-year 2020 EPS to come in a range of $3.60-3.70 (above the $3.51 consensus estimate) on revenue that is expected to decline 4% on a constant currency basis, or ~$9.28B. Call volume is dominating (~50:1 over puts) which is primarily being driven by activity on the April 17^th 37.00 call (volume is 12,682).

New 52-week highs (102 new highs today): Becton Dickinson and Company (BDX + $2.94 to $282.69), Lockheed Martin Corp. (LMT + $1.80 to $434.18), Southern Company (SO + $0.15 to $69.89), Thompson Reuters Corp. (TRI + $0.49 to $80.28)

Notable Call Activity

Some unusual call activity (~6:1 over puts) is being seen in Nektar Therapeutics Inc. (NKTR + $0.61 to $20.38) which is primarily being driven by activity on the February 7^th 21.00 call. Volume on this contract is 4,421 versus open interest of 8, so it’s likely that this is all new positioning. Transactions on this contract mostly consisted of various-sized blocks that were being bought at the ask price of $0.50, which suggests bullish intent.

Also seeing some heavy call activity (~4:1 over puts) is Gilead Sciences Inc. (GILD + $0.79 to $64.62) which is primarily being driven by activity on two contracts that expire at the end of this week (January 31^st) – the 64.50 call (volume is 8,605 vs. open interest of 6,889) and the 65.00 call (volume is 5,321 vs. open interest of 2,789).  

Today’s Bearish Activity 

Several stocks are moving lower following disappointing earnings announcements:

• F5 Networks Inc. (FFIV - $2.75 to $129.95): The cloud communications company reported fiscal Q1 adjusted earnings of $2.55 per share ($0.12 beat) on revenue that rose 4.7% year-over-year to $569.31M (above the $565.96M expected). Looking ahead, the company said it expects Q2 adjusted EPS to come in a range of $2.14-2.17 (below the $2.44 consensus estimate) on revenue of $580-590M (above the $570.9M expected). Calls and puts are trading roughly even with the January 31^st 128.00 put being the most actively traded contract (volume is 904).
• Juniper Networks Inc. (JNPR - $0.98 to $23.49): The maker of networking products reported Q4 earnings of $0.58 per share, excluding non-recurring items ($0.01 beat) on revenue that rose 2.3% year-over-year to $1.21B (above the $1.19B expected). In terms of guidance, the company said it expects Q1 EPS to come in a range of $0.24-0.30 (below the $0.32 consensus estimate) on revenue that is expected to come in a range of $1.00B-1.06B (vs. the $1.04B expected). Puts are outnumbering calls nearly 3:1 with the January 31^st 23.50 put being the most actively traded contract (volume is 4,013).
• 3M Co. (MMM - $8.22 to $167.41): The industrial conglomerate reported Q4 earnings of $1.95 per share, excluding non-recurring items ($0.15 miss) on revenue that rose 2.1% year-over-year to $8.11B (slightly below the $8.12B expected). Concurrent with the earnings release the company said that it will eliminate approximately 1,500 positions across all business groups, functions and geographies. In terms of guidance, the company said it expects full-year 2020 EPS to come in a range of $9.30-9.75 (vs. the $9.61 consensus estimate) on revenue that is expected to come in a range of $32.00-32.74B (below the $33.70B expected). Calls are outnumbering puts roughly 4:3 but the January 31^st 165.00 put is the most actively traded contract (volume is 3,073).
• McCormick & Co. Inc. (MKC - $3.64 to $169.06): The spice maker reported Q4 earnings of $1.61 per share, excluding non-recurring items (in-line with estimates) on revenue that rose 1.2% year-over-year to $1.48B (below the $1.52B expected). The company issued downside guidance as full-year 2020 EPS is expected to come in a range of $5.20-5.30 on revenue that is expected to come in a range of $5.45-5.56B versus the respective $5.54 and $5.54B consensus estimates.  Puts are outnumbering calls nearly 2:1 with the February 21^st 160.00 put garnering the most attention from traders (volume is 323).

New 52-week lows (66 new lows today): Delek US Holdings Inc. (DK + $0.47 to $29.43), Graham Holdings Company (GHC + $1.69 to $584.45), Simon Property Group (SPG - $0.36 to $141.27)

Notable Put Activity

Some unusual put activity (~19:1 over calls) is being seen in Herbalife Ltd. (HLF + $0.13 to $40.21) which is primarily being driven by activity on the May 15^th 30.00 put. Volume on this contract is 4,760 versus open interest of 1,865, so we know that this primarily represents new positioning. Nearly all of the volume on this contract is due to two blocks (4,120 & 690) that were bought at the same time for $0.91, which suggests bearish intent.

Merck & Co. (MRK + $0.07 to $86.17): An 8,500 block was sold on the January 2021 82.50 put at the bid price of $5.45 (open interest is 2,214). This put sale suggests that the block trader believes that MRK will remain above the $82.50 price level or is comfortable taking a long 850,000 shares position in the stock at an effective purchase price of $77.05 at expiration.

Volume Signals     

iShares MSCI Emerging Markets ETF (EEM + $0.35 to $43.42): The top two most actively traded contracts in the market today are on this ETF:

• EEM 2/28/2020 45.00 call (volume is 100,105 vs. open interest of 773): The activity on this contract included multiple large blocks (20K, 10K, 10K, 10K, etc.) that were being bought at various times at the ask price of $0.35.
• EEM 2/28/2020 46.00 call (volume is 100,054 vs. open interest of 955): The activity on this contract included multiple large blocks (20K, 10K, 10K, 10K, etc.) that were simultaneously being sold at various times at the bid price of $0.12.

We know these blocks are new positions and it appears that multiple 45.00/46.00 bull call spreads were established here.

Baker Hughes Co. (BKR - $0.03 to $22.02): Option volume is running at over 25x the daily average of 367 contracts which is primarily due to activity on the February 21^st 21.00 call. Volume on this contract is 7,174 versus open interest of 89, so it’s likely that this is all new positioning. The bulk of the activity on this contract consisted of various-sized blocks that were being bought for between $1.20 and $1.35 each, including a 3,333 block that was bought at the ask price of $1.30, which suggests bullish intent.

Gauging Volatility

The CBOE Volatility Index (VIX - 2.27 to 15.96) has been in the red all day today (intraday range is 15.69-18.03) as equity markets are higher across the board around the mid-day mark today (DJI + 239, SPX + 35, COMPX + 125). VIX option volume has been average today at 314,151 contracts (#6 on the top 10 most actives list) and the activity has been call-biased (the volume put/call ratio is currently 0.28). The most actively traded contract is the February 19^th 25.00 call as volume is 93,300 versus open interest of 162,956.

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.