Today's Options Market Update

U.S. stocks are trimming solid losses sustained earlier in the week due to a whipsaw of trade headlines that revived uncertainty of a "phase one" U.S.-China deal. A much stronger-than-expected November nonfarm payroll report is the main catalyst for today's upward move. The report suggested the all-important U.S. consumer may remain on solid footing, while at the same time appearing to keep concerns about a return of Fed rate hikes in check. Treasury yields are ticking higher and the U.S. dollar is jumping on the labor data, which was accompanied by a favorable consumer sentiment report, while gold is lower. Crude oil prices have reversed higher after the OPEC+ meeting delivered deeper production cuts and additional reductions beyond the agreement from Saudi Arabia. Ulta Beauty is rallying on its earnings report and DocuSign is gaining ground after releasing quarterly results. Asia finished mostly higher and Europe is rising as the U.S. data seems to be overshadowing a disappointing German industrial production report.

At 10:56 a.m. ET, the Dow Jones Industrial Average rising 1.1%, while the S&P 500 Index and the Nasdaq Composite are gaining 1.0%. WTI crude oil is increasing $0.41 to $58.84 per barrel, Brent crude oil is trading $0.30 higher at $63.99 per barrel, and wholesale gasoline is up $0.01 to $1.63 per gallon. The Bloomberg gold spot price is dropping $14.74 at $1,461.26 per ounce, and the Dollar Index—a comparison of the U.S. dollar to six major world currencies—is advancing 0.4% to 97.80. Natural Gas prices have traded in a range of $2.38-2.44 and were last seen trading lower by $0.016 (or - 0.66%) to $2.411/MMBtu.

Source: Schwab Center for Financial Research

Today’s Bullish Activity

Multiple names are moving higher after reporting earnings:

• Crowdstrike Holdings Inc. (CRWD + $1.05 to $54.05): The provider of security solutions reported a Q3 loss of $0.07 per share, excluding non-recurring items ($0.05 beat) on revenue that rose 88.4% year-over-year to $125.1M (above the $118.79M expected) as annual recurring items (ARR) increased 97% year-over-year to $501.7M. In terms of guidance, the company said it expects to report a Q4 loss of $0.08-0.09 per share on revenue of $135.9-138.6M, which is above the respective ($0.11) and $127.18M consensus estimates. Calls are slightly outnumbering puts but the December 13^th 40.00 put is seeing the most action from traders (volume is 1,339).
• DocuSign Inc. (DOCU + $3.85 to $73.35): The provider of digital contracts and document services reported Q3 earnings of $0.11 per share, excluding non-recurring items ($0.07 beat) on revenue that rose 39.9% year-over-year to $249.5M (better than the $240.4M expected). The company issued upside guidance as Q4 revenue is expected to come in a range of $263-267M versus the $261.1M consensus estimate. DOCU hit an all-time high of $75.80 earlier in the session. Calls are outpacing puts roughly 5:1 with the January 17^th 70.00 call is topping the most actives list (volume is 5,742).
• Ulta Beauty Inc. (ULTA + $27.04 to $263.06): The cosmetics retailer reported Q3 earnings of $2.25 per share ($0.12 beat) on revenue that rose 7.9% year-over-year to $1.68B (slightly below the $1.69B expected) as comparable same-store sales (at stores open at least 14 months and e-commerce sales) increased 3.2%. Looking ahead, the company said it expects full-year 2020 EPS to come in a range of $11.93-12.03 (above the $11.92 consensus estimate) on revenue of ~$7.39B (below the $7.41B consensus estimate). Calls are outnumbering puts roughly 2:1 with the December 6^th 270.00 call being the most actively traded contract (volume is 6,480).

New 52-week highs (149 new highs today): Apple Inc. (AAPL + $3.56 to $269.14), Alibaba Group Holdings (BABA + $0.90 to $200.90), Energizer Holdings Inc. (ENR + $0.72 to $52.45), Humana Inc. (HUM + $3.03 to $348.24), JP Morgan Chase & Co. (JPM + $2.02 to $135.07)

Notable Call Activity

Some heavy call activity (~12:1 over puts) is being seen in Marathon Oil Corp. (MRO + $0.32 to $12.37) as option traders primarily target the December 13^th 12.00 call. Volume on this contract is 6,931 versus open interest of 655, so we know that the activity primarily represents new positioning. The majority of the transactions on this contract consisted of various-sized blocks that were being bought at the ask price of $0.37, which suggests bullish intent.

Today’s Bearish Activity 

A couple of names are moving lower after reporting earnings:

• Guidewire Software Inc. (GWRE - $7.33 to $111.00): The industry platform provider to property & casualty insurers reported fiscal Q1 earnings of $0.13 per share ($0.10 beat) on revenue that fell 12.8% year-over-year to $157M (above the $151.75M expected). The company issued downside Q2 revenue guidance, which is expected to come in a range of $162-166M (below the $188.08M consensus estimate), and in-line full-year 2020 revenue guidance, which is expected to come in a range of $759-771M (vs. the $765.25M consensus estimate). Puts are outnumbering calls roughly 5:2 with the December 20^th 110.00 put being the most actively traded contract (volume is 729).
• Okta Inc. (OKTA - $2.36 to $116.70): The provider of identity solutions for enterprises reported a Q3 loss of $0.07 per share, excluding non-recurring items ($0.05 beat) on revenue that rose 45.0% year-over-year to $153.04M (above the $143.88M expected). Remaining Performance Obligations (RPO) increased 68% year-over-year to $1.03B. Looking ahead, the company said it expects to report a Q4 loss of $0.04-0.05 per share on revenue of $155-156M (better than the respective ($0.07) and $153.05M consensus estimates). Calls and puts are trading roughly even with the December 20^th 110.00 put seeing the most action from traders (volume is 732).
• Yext Inc. (YEXT - $3.05 to $13.55): The search experience cloud company reported a Q3 loss of $0.19 per share, excluding non-recurring items ($0.01 miss) on revenue that rose 30.4% year-over-year to $76.4M (in-line with the $76.37M expected). The company said it expects to report a Q4 loss of $0.13-0.15 per share on revenue of $79-81M (worse than the respective ($0.08) and $83.92M consensus estimates). Puts are slightly outnumbering calls with the December 20^th 15.00 put being the most actively traded contract (volume is 923).
• Zoom Video Communications Inc. (ZM - $6.85 to $62.82): The video conferencing company reported Q3 earnings of $0.09 per share, excluding non-recurring items ($0.03 beat) on revenue that rose 84.9% year-over-year to $166.6M (above the $156.23M expected). Approximately 74,100 customers with more than 10 employees increased 10% year-over-year while customers contributing more than $100K in trailing 12-month revenue increased 97% year-over-year to 546. The company issued upside guidance as Q4 EPS is expected to be ~$0.07 on revenue of $175-176M versus the respective $0.04 and $166.56M consensus estimates. Calls are slightly outnumbering puts with the December 13^th 70.00 call being the most actively traded contract (volume is 1,732).

New 52-week lows (17 new lows today): Apache Corp. (APA + $0.67 to $19.25), Benefit Focus Inc. (BNFT + $0.28 to $21.37), Yext Inc. (YEXT - $2.63 to $13.97)

Notable Put Activity

Some unusual put activity (~5:1 over calls) is being seen in SPDR Select Sector Industrial ETF (XLI + $0.97 to $81.11) which is primarily being driven by activity on the December 20^th 2020 79.00 put. Volume on this contract is 17,828 (vs. open interest of 9,386) which mostly consisted of various-sized blocks that were being bought at the ask price of $0.44, including a 4,600 block that was bought at the ask price of $0.44.  

Marvell Technology Group Ltd. (MRVL + $0.84 to $24.30): A couple of large blocks were seen trading on the December 20^th expiration earlier this morning:

• 23.50 put - a 2,500 block was bought at the ask price of $0.33 (open interest is 439)
• 22.50 put - a 5,000 block was sold at the bid price of $0.10 (open interest is 28)

We know these blocks are new positions and it appears that a put front spread was established for a net debit of $0.03 (x 2,500 contracts x 100 multiplier, excluding commissions) which achieves maximum gain if MRVL closes exactly at $22.50 at expiration.

Volume Signals     

iQiyi Inc. (IQ + $0.77 to $20.28): Option volume is running at over 3x the daily average of 8,675 contracts and the activity is definitively call-biased (~9:1 over puts) as nine out of the top 10 most actively traded contracts are calls. The top two most actively traded contracts are the December 20^th 21.00 call (volume is 5,951 vs. open interest of 6,631) and the December 20^th 21.50 call (volume is 4,880 vs. open interest of 712). The activity on the 21.00 call mostly consisted of various-sized blocks that were being bought at or near various ask prices (mostly for between $0.59-0.63) while activity on the 21.50 call mostly consisted of various-sized blocks that were being bought at the ask price of $0.37. From a technical perspective, shares of IQ hit a six–month high of $20.66 earlier this morning and are currently above the 200-day SMA (currently $19.86) where the stock has previously encountered resistance back on November 7^th, September 11^th-13^th, and July 1^st.

Teck Resources Ltd. (TECK + $0.31 to $16.03): Option volume is running at over 4x the daily average of 1,699 contracts which is primarily being driven by activity on the February 21^st 2020 16.00 call. Volume on this contract is 4,934 versus open interest of 278, so we know that this primarily represents new positioning. Transactions on this contact mostly consisted of various-sized blocks that were being bought at or near various ask prices, including a 2,184 block that was bought at the ask price of $1.26, which suggests bullish intent.

Goldman Sachs Group (GS + $6.52 to $223.66): Option volume is running at over 3x the daily average of 9,334 contracts as all of the top 10 most actively traded contracts are calls. Option traders were primarily targeting the around the money contracts that expire today and next Friday (December 13^th).  Note: GS is trading less than 0.5% below its 52-week high of $224.77 this morning.    

ON Semiconductor Co. (ON + $0.58 to $22.24): Option volume is running at over 3x the daily average of 948 contracts which is primarily being driven by activity on the January 2021 25.00 call. Volume on this contract is 2,113 (vs. open interest of 18,343) which mostly consisted of various mid-sized blocks that were being bought for $2.62 when the bid/ask spread was $2.45 x $2.75. It’s likely that the activity on this contract represents new positioning given the expiration date but we can’t be sure since volume is below open interest.

Gauging Volatility

The CBOE Volatility Index (VIX - 1.03 to 13.49) has been in negative territory all morning (intraday range is 13.19-14.47) as equity markets are firmly higher across the board around the mid-day mark today (DJI + 332, SPX + 31, COMPX + 85). VIX option volume has been below average today at 163,695 contracts (#8 on the top 10 most actives list) and the activity has been call-biased (the volume put/call ratio is currently 0.50). The most actively traded contract is the December 18^th 21.00 call as volume is 15,546 versus open interest of 247,064.

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.