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Today's Options Market Update

Stocks tumble mid-day on trade concerns.

U.S. stocks are lower with the continued resurfacing U.S.-China trade uncertainty hampering conviction near record high territory, though losses appear to be getting limited by upbeat earnings and guidance from Target and Lowe's. The consumer discretionary sector is trying to recover from yesterday's drop that came courtesy of disappointing results from Dow member Home Depot and Kohl's. Treasury yields are lower and the U.S. dollar is nudging higher, with mortgage applications declining and the minutes from the Fed's October monetary policy meeting that delivered a third rate cut of the year looming. Gold is dipping and crude oil prices are gaining ground. Asia finished mostly lower and Europe is tilting to the downside.   

At 1:08 p.m. ET, the Dow Jones Industrial Average is down 0.77% and the S&P 500 Index is dipping 0.72%, while the NASDAQ Composite is lower by 0.89%. WTI crude oil is increasing $0.98 to $56.33 per barrel, Brent crude oil is trading $1.00 higher at $61.91 per barrel, and wholesale gasoline is $0.03 higher to $1.63 per gallon. The Bloomberg gold spot price is declining $3.51 at $1,468.94 per ounce, and the Dollar Index—a comparison of the U.S. dollar to six major world currencies—is ticking 0.1% higher to 97.92. Natural Gas prices have traded in a range of $2.51-2.57 and were last seen trading higher by $0.039 (or + 1.55%) to $2.549/MMBtu.

Source: Schwab Center for Financial Research

Today’s Bullish Activity

Gapping up to an all-time high this morning is Target Corp. (TGT + $14.34 to $125.19) after the retail giant reported Q3 earnings of $1.36 per share ($0.18 beat) on revenue that increased 4.7% to $18.41B (below the $18.45B consensus estimate) as comparable same-store sales increased 4.7% year-over-year. Q3 comparable digit channel sales increased 31% with same-day fulfillment services accounting for 80% of Target’s comparable sales growth. The company raised full-year 2020 EPS guidance to a range of $6.25-6.45 (vs. prior guidance of $5.90-6.20 and the $6.17 consensus estimate). Calls are outnumbering puts nearly 2:1 with the November 22nd 125.00 call seeing the most action from traders (volume is 11,040).

Also trading to the upside this morning is Lowe’s Companies Inc. (LOW + $6.09 to $119.50) after the home improvement retailer reported Q3 earnings of $1.41 per share ($0.06 beat) on revenue that fell 0.2% year-over-year to $17.39B (below the $17.69B expected) as comparable same-store sales increased 3.0% year-over-year. The company raised full-year 2020 EPS guidance to a range of $5.63-5.70 (from a prior view of $5.45-5.65 and vs. the $5.67 consensus estimate) on revenue that is expected to increase 2.0% year-over-year to ~$72-74B (vs. the $72.53B consensus estimate). Calls are outnumbering puts roughly 3:2 with the November 22nd 120.00 call topping the most actives list (volume is 2,835).

Lastly, shares of Paycom Software Inc. (PAYC + $14.39 to $253.88) are gapping up after Raymond James upgraded the payroll and HR administrator  specialist to “Outperform” from “Sector Perform” and increased their price target to $278.00 from $230.00. Calls are outpacing puts roughly 2:1 but the January 2020 250.00 put is the most actively traded contract (volume is 301).  

 

New 52-week highs (142 new highs today): Amgen Inc. (AMGN - $0.21 to $224.29), Global Payments Inc. (GPN - $2.40 to $179.32), Lumentum Holdings Inc. (LITE - $1.73 to $67.52), NASDAQ Inc. (NDAQ + $0.40 to $105.47)

Notable Call Activity

Some unusual call activity (~12:1 over puts) is being seen in Emerson Electric Co. (EMR - $0.19 to $73.09) which is primarily being driven by activity on two contracts:

  • January 2020 75.00 call (volume is 5,505 vs. open interest of 12,831): the activity on this contract mostly consisted of three large blocks (1,997, 1,007, 1,006) that were bought at the ask price of $1.45
  • November 22nd 73.00 call (volume is 1,175 vs. open interest of 162): the activity on this contract mostly consisted of various-sized blocks that were being bought at the ask prices of $0.50 and $0.55

It’s likely that the large block trades on the January contract are new positions given the expiration date but we can’t be sure given the open interest figure.     

Verizon Communications Inc. (VZ - $0.20 to $59.30): Calls are outpacing puts roughly 9:1 which is primarily being driven by a 10K block that was bought on the March 2020 62.50 call for $0.79 when the bid/ask spread was $0.76 x $0.80 (open interest is 4,867). 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 above the midpoint of the bid/ask spread.  

Today’s Bearish Activity 

Several stocks are trading lower following quarterly earnings results:

  • PagSeguro Digital Ltd. (PAGS - $4.53 to $32.23): The Brazilian payments processor reported Q3 earnings of BRL 1.18 per share, excluding non-recurring items (BRL 0.02 miss) on revenue that rose 30.3% year-over-year to BRL 1.46B (below the BRL 1.5B expected). Total payment volume increased 45.0% to BRL 29.4B while active merchants increased 1.2M to 5.0M year-over-year. Calls are slightly outnumbering puts but the December 20th 32.50 put is the most actively traded contract (volume is 543).
  • Pinduoduo Inc. (PDD - $8.20 to $32.52): The Chinese e-commerce site reported a Q3 loss of RMB 1.44 per share, excluding non-recurring items (RMB 0.92 miss) on revenue that rose 122.8% year-over-year to RMB 7.51B (below the RMB 7.58B expected) as gross merchandise volume (GMV) increased 144% to RMB 840.2B. Average monthly active users increased 85% to 429.6M year-over-year. Today’s ~20% drop puts the stock below its 50-day SMA for the first time since July. Calls are slightly outnumbering puts with the December 20th 35.00 call leading the way (volume is 6,866).
  • Urban Outfitters Inc. (URBN - $3.70 to $25.09): The retailer reported Q3 earnings of $0.56 per share ($0.01 miss) on revenue that rose 1.4% year-over-year to $987.47M (below the $1.00B expected) as comparable same-store sales increased 3.0% year-over-year. Today’s ~13% drop puts the stock below both its 50-day SMA ($27.80) and 200-day SMA ($26.67). Puts are slightly outnumbering calls with the November 22nd 26.00 put seeing the most action from traders (volume is 3,884).

 

New 52-week lows (149 new lows today): Big Lots Inc. (BIG - $0.33 to $19.00), Carrizo Oil & Gas (CRZO + $0.05 to $6.49), Chart Industries Inc. (GTLS - $0.19 to $53.31), Fossil Group (FOSL - $0.45 to $6.86), Sina Corp. (SINA - $0.85 to $31.73)

Notable Put Activity

Some unusual put activity (~7:1 over calls) is being seen in Analog Devices Inc. (ADI - $2.01 to $109.70) as option traders primarily target the November 29th 110.00 put. Volume on this contract is 2,406 (vs. open interest of 20) which mostly consisted of a 1,221 block that was bought for $2.80 when the bid/ask spread was $2.55 x $2.85. We know this block is a new position given the open interest figure and we can assume the intent is bearish in nature since the trade took place above the midpoint of the bid/ask spread. The positioning comes ahead of the company’s fiscal Q4 earnings report which is scheduled to be released next Tuesday (November 26th) before the market open.  

Gap Inc. (GPS - $0.36 to $16.42): Puts are outpacing calls better than 5:1 which is primarily being driven by activity on the December 20th 14.50 put. Volume on this contract is 8,953 versus open interest of 58, so it’s likely that this is all new positioning. The majority of the activity on this contract consisted of various-sized blocks that were being bought for $0.40 and $0.41, which suggests bearish intent.

Volume Signals     

Quanta Services Inc. (PWR + $0.30 to $42.31): Option volume is running at over 30x the daily average of 240 contracts which is primarily being driven by activity on the January 2020 43.00 call. Volume on this contract is 6,424 (vs. open interest of 2) which mostly consisted of various-sized blocks that were being bought at the ask price of $1.05 (suggesting bullish intent).

Axsome Therapeutics Inc. (AXSM + $1.44 to $31.87): Option volume is running at roughly 3x the daily average of 1,631 contracts which is primarily being driven by activity on the December 20th 25.00 put. Volume on this contract is 4,284 (vs. open interest of 848) which mostly consisted of a 3,789 block that was bought for $2.45 when the bid/ask spread was $1.40 x $2.50, suggesting bearish intent.

iShares Russell 2000 Index (IWM - $0.16 to $158.95): A 14,000 block was bought on the January 2020 164.00 call for $1.63 (open interest is 3,311). 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 above the midpoint of the bid/ask spread.  

Gauging Volatility

The CBOE Volatility Index (VIX + 0.36 to 13.22) has been on both sides of the unchanged line today (intraday range is 12.61-13.73) as equity markets are firmly lower around the mid-day mark today (DJI - 183, SPX - 17, COMPX - 57). VIX option volume has been above average today at 470,386 contracts (#3 on the top 10 most actives list) and the activity has been call-biased (the volume put/call ratio is currently 0.50). However, the most actively traded contract is the December 18th 13.00 put as volume is 54,122 versus open interest of 182,518.

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.

What You Can Do Next

  • Schwab clients: Contact a Trading Specialist at 800-435-9050 for questions or log in to the Schwab Learning Center.

  • Not yet a client? Learn more about Schwab Trading Services

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Options carry a high level of risk and are not suitable for all investors. Certain requirements must be met to trade options through Schwab. Please read the options disclosure document titled "Characteristics and Risks of Standardized Options." Futures trading carries a high level of risk and is not suitable for all investors. Supporting documentation for any claims or statistical information is available upon request. All corporate names and market data shown above are for illustrative purposes only and are not a recommendation, offer to sell, or a solicitation of an offer to buy any security. This service is for personal use only. Commercial use or redistribution in any form, print or electronic, is prohibited. 2019 Charles Schwab & Co., Inc. All rights reserved. Member SIPC.

The information provided here is for general informational purposes only and should not be considered an individualized recommendation or personalized investment advice. All expressions of opinion are subject to change without notice in reaction to shifting market conditions.

This material includes information obtained from third-party sources and believed to be reliable, but its accuracy or completeness is not guaranteed. All corporate names and market data shown above are for illustrative purposes only and are not a recommendation, offer to sell, or a solicitation of an offer to buy any security. All references to subjects (securities, indexes, futures contracts, and options contracts) were derived based on screens conducted by the writer for certain anomalous activity such as volumes, volatility and other related market data. As needed for brevity, the writer may have applied discretion when choosing among screen outputs for inclusion. Such discretion may have been based on news reports or other considerations of public interest. The views or opinions are those of the writer, and are subject to change without notice. All referenced subjects were chosen for illustrative purposes only and should not be considered recommendations, offers to sell, or solicitations of offers to purchase. Schwab Center for Financial Research ("SCFR") is a division of Charles Schwab & Co., Inc. The investment information mentioned here may not be suitable for everyone. Each investor needs to review an investment strategy for his or her own particular situation before making any investment decision. Past performance is no guarantee of future results.

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