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Today's Options Market Update

Stocks move back into positive territory around mid-day in volatile session.

U.S. stocks are attempting to bound back following yesterday's sharp decline that came amid festering contagion concerns out of China on default uncertainty of the world's most indebted property developer Evergrande. Uncertainty remains regarding the global implications of the issues out of China, while caution persists as the Fed begins its two-day monetary policy meeting and as a decision on the raising the debt ceiling to avoid a default in the world's largest economy of the U.S. remains stymied. In economic news, August housing construction activity came in above expectations as the lone economic report slated for today. In equity news, ConocoPhillips agreed to acquire Royal Dutch Shell's Permian business for $9.5 billion, while Lennar Corporation posted mixed quarterly results. Treasuries are little changed after yesterday's rise amid the global skittishness, along with the U.S. dollar. Crude oil prices have turned lower and gold is higher. Asia finished mixed, with Hong Kong rebounding and Japan falling after yesterday's holiday, while Europe is recovering after yesterday's decisive drawdown. 

At 12:45 p.m. ET, the Dow Jones Industrial Average is up 0.54% and the S&P 500 Index is adding 0.46%, while the Nasdaq Composite is higher by 0.65%. WTI crude oil is decreasing $0.61 to $69.53 per barrel, Brent crude oil is $0.31 lower at $73.61 per barrel. The gold spot price is $13.10 higher to $1,776.90 per ounce, and the Dollar Index—a comparison of the U.S. dollar to six major world currencies—is little changed at 93.28. Natural Gas prices have traded in a range of $4.766-5.046 and were last seen trading lower by $0.203 (or -4.07%) to $4.782/MMBtu.

Source: Schwab Center for Financial Research

Today’s Bullish Activity

Leading the point gainers list this morning is AutoZone Inc. (AZO + $41.49 to $1,626.65) after the auto parts retailer reported Q4 earnings of $35.72 per share ($5.84 beat) on revenue that rose 8.1% year-over-year to $4.91B (above the $4.57B consensus estimate) as domestic same-store sales (or sales for stores open at least one year) increased 4.3% year-over-year. Shares of AZO are trading at a three-week high following the results. Calls are slightly outnumbering puts with the September 24th 1700.00 call being the most actively traded contract (volume is 157).

Also trading to the upside this morning is Uber Technologies Inc. (UBER + $3.71 to $43.50) after the ride sharing giant hinted that it could report its first ever profit, on an adjusted basis, for the current quarter. Earlier this morning in a regulatory filing, Uber said that it now expects Q3 adjusted EBITDA to come in a range of negative $25M to positive $25M, with gross bookings expected to come in a range of $22.8-23.2B. Previously, the company forecasted Q3 adjusted EBITDA to be “better than a loss of $100M” and Q2 gross bookings to come in a range of $22-24M. Looking further out, the company said that it now expects Q4 adjusted EBITDA to come in a range of $0-$100M (vs. a prior forecast for adjusted EBITDA profitability). Calls are outnumbering puts roughly 3:1 with the September 24th 43.00 call seeing the most action from traders (volume is 54,491).

 

New 52-week highs (29 new highs today): Cross Timbers Royalty Trust (CRT + $0.19 to $13.78), Group 1 Automotive Inc. (GPI + $3.61 to $181.40), W.R. Grace & Company (GRA + $0.01 to $69.98)

Notable Call Activity

Some unusual call activity (~14:1 over puts) is being seen in electric vehicle maker Faraday Future Intelligence Electric Inc. (FFIE + $0.62 to $10.99) as all of the top 10 most actively traded contracts are calls. Topping the most actives list is the September 24th 11.00 call as volume is 8,593 versus open interest of 544, 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 various times for between $0.70 and $0.80 each, which suggests bullish intent.

First Majestic Silver (AG + $0.57 to $12.51): A 7,000 contract block traded on the November 19th 21.00 call for $0.11, directly in the middle of the $0.10 x $0.12 bid/ask spread (open interest is 1). We know this block is a new position based on the open interest figure, but the intent is unclear since the trade took place directly in the middle of the bid/ask spread.   

Today’s Bearish Activity    

Moving lower this morning is Lennar Corp. (LEN - $2.03 to $96.27) after the homer builder reported Q3 earnings of $3.27 per share (in-line with estimates) on revenue that rose 18.2% year-over-year to $6.94B (below the $7.26B expected). Q3 deliveries increased 10% to 15,199 homes, new orders increased 5% to 16,277 and backlog increased 31% to 25,819 (all year-over-year). Looking ahead, Lennar CEO Stuart Miller warned of supply chain challenges, stating, “During the third quarter, our company and the homebuilding industry as a whole continued to experience unprecedented supply chain challenges which we believe will continue into the foreseeable future.” Calls are outnumbering puts nearly 2:1 but the September 24th 90.00 put is the most actively traded contract (volume is 874).

Also trading to the downside is Big Lots Inc. (BIG - $2.27 to $45.24) after Piper Sandler downgraded the discount retailer to “Neutral” from “Overweight” and cut their price target on the stock to $50.00 from $60.00. Piper Sandler analyst Peter J. Keith cited the end of fiscal stimulus, along with supply chain/ocean freight rates, and retail wage pressure as headwinds for the company in the future. Calls are outnumbering puts roughly 5:2 with the October 15th 57.50 call being the most actively traded contract (volume is 914).

 

New 52-week lows (42 new lows today): Americold Realty Trust (COLD - $2.10 to $32.38), Ollie’s Bargain Outlet Holdings Inc. (OLLI - $1.42 to $64.65), Take-Two interactive Inc. (TTWO - $2.04 to $146.80)

Notable Put Activity

Some unusual put activity (better than 100:1 over calls) is being seen in PennyMac Financial Services Inc. (PFSI - $0.56 to $63.78) which is primarily being driven by a 3,750 contract block that was bought on the May 2022 45.00 put at the ask price of $1.25 (open interest is 0). We know this block is a new position based on the open interest figure and we can assume the intent is bearish in nature since the trade took place at the ask price.

Volume Signals

News Corp. (NWSA + $0.46 to $22.32): Option volume is running at roughly 60x the daily average of 131 contracts which is primarily being driven by a 6,252 contract block that was bought on the October 15th 22.00 call for $1.20 when the bid/ask spread was $0.95 x $1.35 (open interest is 46). We know this block is a new position based on 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.   

Invesco Currency Shares Canadian Dollar Trust (FXC + $0.10 to $76.62): Option volume is running at roughly 35x the daily average of 320 contracts as option traders primarily target the December 17th 78.00 put. Volume on this contract is 12,990 versus open interest of 38, so its likely that this is nearly all 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 $2.05 and $2.10 each, which suggests bearish intent. 

Renaissance IPO ETF (IPO + $1.14 to $68.35): Option volume is running at nearly 15x the daily average of 168 contracts which is primarily being driven by a 2,300 contract block was sold on the April 2022 65.00 put for $4.30 when the bid/ask spread was $4.20 x $4.70 (open interest is 4). We know this block is a new position based on the open interest figure and we can assume that the block trader believes that IPO will close above the $65.00 price level and/or is comfortable taking a long 230,000 share position in this ETF at an effective purchase price of $60.70 in the event that it closes below this level at expiration. If this put sale is cash-secured, the $4.30 premium represents a ~6.6% return if IPO closes above $65.00 at expiration (206 days from now).  

Gauging Volatility

The CBOE Volatility Index (VIX - 2.12 to 23.59) has been in negative territory all day today (the intraday range is 21.71-25.60) as equity markets are higher across the board around the mid-day mark today (DJI + 158, SPX + 17, COMPX + 87). 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 October 20th 20.00 put as volume is 15,930 versus open interest of 105,831. 

Shares of specialty vehicle and vehicle body maker Oshkosh Corp. (OSK - $5.15 to $101.71) are under pressure this morning following a Jefferies downgrade (from “Buy” to “Hold”) and price target cut (from $150.00 to $105.00) and average implied volatility is up to a six-week high of 35%. The stock is trading at the lowest levels since February this morning. 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.

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.

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Important Disclosures

Benchmarks by TradeWeb Market Data 

Schwab Center for Financial Research ("SCFR") is a division of Charles Schwab & Co., Inc. This material includes information obtained from third-party sources and believed to be reliable, but its accuracy or completeness is not guaranteed. This report is for informational purposes only and is not a solicitation, or a recommendation that any particular investor should purchase or sell any particular security. 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. All expressions of opinions are subject to change without notice in reaction to shifting market conditions. 
 
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. 


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