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Today's Options Market Update

Stocks rally to fresh highs on trade optimism.

U.S. stocks are higher in afternoon action and on track to post a six-straight week of gains for the first time since late 2017, despite a mixed retail sales report, another drop in industrial production, and an unexpected deceleration in regional manufacturing growth. Trade uncertainty, which had resurfaced and put a lid on the week's market action, is being tempered somewhat after White House advisor Larry Kudlow offered upbeat comments regarding progress toward a "phase one" U.S.-China trade deal. In equity news, Applied Materials delivered another dose of upbeat results from the semiconductor sector and RH is higher after a disclosed stake in the company by billionaire investor Warren Buffett's Berkshire Hathaway. Treasury yields are higher and crude oil prices are also gaining ground, while the U.S. dollar and gold are lower. Europe finished higher.

At 12:52 p.m. ET, the Dow Jones Industrial Average, the S&P 500 Index and the Nasdaq Composite are all gaining 0.6%. WTI crude oil is advancing $1.13 to $57.90 per barrel, Brent crude oil is trading $1.26 higher at $63.54 per barrel, and wholesale gasoline is up $0.03 to $1.65 per gallon. The Bloomberg gold spot price is decreasing $4.05 at $1,467.35 per ounce, and the Dollar Index—a comparison of the U.S. dollar to six major world currencies—is declining 0.2% at 98.02. Natural gas prices have traded in a range of $2.72 to $2.61 and was last seen trading higher by $0.054 at $2.701/MMBtu

Source: Schwab Center for Financial Research

Today’s Bullish Activity

Some notable stocks trading to the upside are:

  • RH (RH + $11.11 to $186.33): Shares of the home furnishing retailer are trading higher today on news of an increased stake by Warren Buffett’s Berkshire Hathaway Inc. Berkshire acquired 1.2 million shares (worth $206.3 million as of Sept. 30th) of RH during the third quarter, according to a regulatory filing. Calls are outnumbering puts roughly 5:1 with the November 15th 190.00 call topping the most active list (volume is 2,247).
  • Farfetch Limited (FTCH + $1.89 to $9.36): The London-based technology platform creator for sales in the luxury fashion industry, is rallying from yesterday’s 52-week low of $7.43 as the company reported Q3 results above expectations.  The total dollar value of orders processed on its platform jumped 58%, and active consumers on FTCH’s sites and related apps increased by 52%. Calls are outnumbering puts roughly 12:1 with the November 15th 10.00 call seeing the most activity (volume 13,608).
  • Applied Materials (AMAT + $3.98 to $60.94): The provider of semiconductor manufacturing equipment, as well as services and software to the global semiconductor, display and related industries, is trading higher on the release of positive earnings. Applied Materials reported Q4 earnings of $0.80 per share ($0.04 beat) on revenues of $3.75B vs the $3.683B expected. The company also issued upside guidance for Q1 - earnings are expected to come in a range of $0.87 and 0.95, vs. the $0.75 Capital IQ consensus while revenue is expected to be in a range of $3.95-4.25B vs. the Capital IQ consensus of $3.71B. Calls are outpacing puts at a ratio of 3:1. The most actively traded contract is the December 20th Call (volume is 10,917).

 

New 52-week highs (161 new highs today): Apple Inc. (AAPL + $1.91 to $264.54), Abb Ltd. (ABB + $0.27 to $22.16), Advanced Micro Devices (AMD + $0.26 to $38.61), JD.Com Inc. (JD + $0.03 to $33.60), Microsoft Corp (MSFT + $1.54 to $149.61).

Notable Call Activity

Dollar General Corp. (DG - $0.27 to $159.22) is seeing some unusual call activity (3:1 over puts), as the top 10 most actively traded contracts are split evenly between calls and puts. The stock is hovering at its 50-day SMA (159.67). The contract seeing the most attention from traders is the November 22nd 157.00 call. Volume on this contract is 3,050 (vs. open interest of 217). The majority of trading on this contract is odd lots at various bid and offer price. Given that volume is higher than open interest, it is likely that new positions are being established on this contract. 

Oracle Corp. (ORCL + $0.41 to $56.50) is also seeing some unusual call activity (16:1 over puts), as 8 out 10 of the most actively traded contracts are calls. The January 17th 52.50 call, volume of 3,088 (vs. open interest of 10,403) and the June 19th 55 call 3,073 (vs. open interest of 1,205) are the most actively traded contracts. Of particular interest are two trades that occurred at the same time and same quantity:

  • January 52.50 call – a 3,059 block was bought for $4.85 when the bid/ask spread was $4.75 x $4.85 (open interest is 10,403)
  • June 2020 55.00 call – a 3,059 block was sold for $4.80 when the bid/ask spread was $4.80 to $4.95 (open interest is 1,205)

Given the volume is greater than the open interest on the June contract, it may be possible that this is a roll up and out of a short call position, for a net debit of $0.05 (x 3,059 x 100 multiplier, excluding commissions). 

Lyft (LYFT + $1.21 to $43.13) is also seeing some unusual call activity (15:1 over puts), as all of the top ten most actively traded contracts are calls. The November 22nd 42.00 call is toping the top ten list, volume in this contract is 2,345 (vs. open interest of 315). Various block trades of 100 contracts or higher (totaling 592 contracts) filled at various bid prices in a range of $1.15 to $1.28. Since the volume is greater than open interest, and each of these trades executed against the bid, we might infer these traders are establishing new short call positions.

Today’s Bearish Activity 

Some notable stocks trading to the downside are:

  • Dolby Laboratories, Inc. (DLB - $4.28 to $61.26): Shares of the San Francisco-based designer and manufacturer of audio and imaging products for cinema, television, broadcast and entertainment industries, is trading lower after reporting Q4 results. Dolby Laboratories reported Q4 earnings of $0.66 (matching expectations) on revenue that rose 24.2% year-over-year to $298.8M vs. the $297.55M consensus. The company issued downside guidance for Q1 - earnings are expected to come in a range of $0.45-$0.51 vs. the $0.84 consensus while revenue is expected to come in a range of $275-$295M vs a consensus of $326.42M. In addition, the company also issued downside guidance for FY20, they see earnings in a range of $3.40-$3.50 vs. the $3.54 consensus, and FY20 revenue in a range of 1.30 -1.35B vs. the consensus of $1.35B. Calls are outpacing puts roughly 4:3 with the December 20th call topping the most actives list (volume is 127).
  • Arrowhead Pharmaceuticals Inc. (ARWR - $3.21 to $45.29): Shares of the Pasadena-based medicine maker for treatment of intractable diseases is retreating from yesterday’s 52-week high ($49.78) on news that Bruce Given, M.D., Arrowhead’s Chief Operations Officer and head of research plans to retire May 1, 2020. Arrowhead also announced the hiring of Javier San Martin, M.D., as chief medical officer, and Curt Bradshaw, Ph.D., as chief scientific officer, effective Monday, November 18, 2019. Puts are outnumbering calls nearly 2:1 with the December 20th 45.00 put seeing the most activity (volume is 769).

 

New 52-week lows (125 new lows today): Aurora Cannabis Inc. (ACB - $0.41 to $2.88), McDermott International (MDR + $0.04 to $0.68), Centerpoint Energy Inc. (CNP - $1.30 to $25.39), Sandridge Permian Trust (PER - $0.37 to $0.86), Tilray Inc. (TLRY +$0.12 to $19.93).

Notable Put Activity

Some unusual put activity (15:1 over calls) is being seen in Goodyear Tire Rubber Inc. (GT + $0.12 to $16.47) as 6 of the 10 most actively traded contracts puts. The most actively traded contract is the April 17th 15.00 put, volume of 4,000 (vs. open interest of 318). All of today’s volume so far is a large block of 4,000 contracts that traded at $1.05 when the bid/offer spread was $1.00 x $1.20. Given that trade occurred closer to the bid, and volume exceeds open interest, we may infer bearish intent on behalf of the trader.

Greensky Inc. (GSKY - $0.53 to $7.21) is seeing some unusual call activity (24:1 over calls), as 4 of the 10 most actively traded contracts are puts. The most actively traded contract is the March 20th 7.50 put, volume of 4,085 (vs. open interest of 342). The majority of today’s volume is being attributed to a large block of 4,000 contracts that traded at $1.25 when the bid/offer spread was $1.20 x $1.30. Given that trade occurred between the bid and offer, we cannot infer the intent of the trader, but we do know this is new positioning since the volume exceeds open interest.

Volume Signals     

Vonage Holdings (VG - $0.02 to $7.66): Option volume is running at over 36x the daily average of 225 contracts. Of interest are 3 block trades of 2,500 each that occurred at the same time:

  • The June 19th 7.00 put – 2,500 contracts were purchased at $0.80 when the bid/ask spread was $0.65 to $0.80 (open interest of 1)
  • The June 19th 10.00 put – 2,500 contracts were sold at $2.55 when the bid/ask spread was $2.55 to $2.70 (open interest of 1).
  • The June 19th 10.00 call – 2,500 contracts were traded at $0.40 when the bid/ask spread was $0.30 to $0.45 (open interest of 13).

We might infer that this block trader placed a credit put spread with an additional long call position. The put spread was sold for a net credit of $1.75 (x 2,500 x 100 multiplier, excluding commissions) or $437,500, which suggests the block trader believes the stock will either close above the break-even point of $8.25 or above $10.00 to receive a max gain of $437,500. In addition, the block trader may have established a long 10.00 call on the June contract, with a breakeven of $10.40 and (theoretical) unlimited upside. However, since the trade occurred between the bid/ask spread, we cannot know for certain.

Gauging Volatility

The CBOE Volatility Index (VIX – 0.74 to 12.31) is in negative territory, as equities move higher across the board (DJI + 135, SPX + 17, COMPX + 53. VIX option volume is heavy today (currently #3 on the top 10 most actives list) and the activity has been put-biased (the volume put/call ratio is 1.43). The most actively traded contract is the November 20th 13.50 put with volume of 32,856 versus open interest of 107,800.

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

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