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Today's Options Market Update

Stocks mixed as investors digest earnings, upbeat jobs data, fiscal uncertainty.

Note: We will not be publishing a Today’s Options Market Update tomorrow (August 7th) but we will include some unusual options activity in tomorrow’s Weekly Trader’s Outlook.

U.S. stocks are mixed amid the continued uncertainty regarding the ability for Congress to reach a deal on an expected new fiscal relief package. However, pressure is likely being limited by a better-than-expected read on weekly initial jobless claims, which continued the theme of favorable global economic reports and comes ahead of tomorrow's key nonfarm payroll figures. Treasury yields are lower as bond prices advance, while the U.S. dollar is trimming yesterday's slide. Crude oil prices are ticking higher and gold remains on a record run. Costco Wholesale posted much stronger-than-expected July sales figures, ViacomCBS topped estimates, and Bristol-Myers Squibb bested revenue forecasts and received a favorable court ruling pertaining to its blood-thinning treatment Eliquis. Elsewhere, MetLife missed the Street's quarterly expectations. Asia finished mixed and Europe is lower despite some upbeat data and following the Bank of England's unchanged monetary policy.

At 10:57 a.m. ET, the Dow Jones Industrial Average is up 0.1%, the S&P 500 Index is dipping 0.1%, and the NASDAQ Composite is declining 0.2%. WTI crude oil is rising $0.06 to $42.25 per barrel, Brent crude oil is increasing $0.08 to $45.25 per barrel, and wholesale gasoline is $0.02 higher at $1.24 per gallon. The Bloomberg gold spot price is advancing $22.15 to $2,060.27 per ounce, and the Dollar Index—a comparison of the U.S. dollar to six major world currencies—is gaining 0.2% to 93.09. Natural Gas prices have traded in a range of $2.19-2.28 and were last seen trading higher by $0.044 (or +2.01%) to $2.235/MMBtu.

Source: Schwab Center for Financial Research

Today’s Bullish Activity

Several stocks are moving higher following upbeat earnings announcements:

  • Carvana Co. (CVNA + $35.33 to $209.45): The e-commerce platform for buying and selling used cars reported a Q2 loss of $0.62 per share ($0.17 beat) on revenue that rose 13.4% year-over-year to $1.12B (below the $1.15B expected). Retail units sold increased 25% year-over-year to 55,098. The company said it is not providing guidance at this time due to the COVID pandemic. Calls are outnumbering puts roughly 4:3 with the August 7th 205.00 call being the most actively traded contract (volume is 2,810).
  • HubSpot Inc. (HUBS + $14.76 to $252.56): The marketing platform for businesses reported Q2 earnings of $0.30 per share, excluding non-recurring items ($0.06 beat) on revenue that rose 24.7% year-over-year to $203.6M (above the $195.64M expected) as subscription revenue increased 26% year-over-year to $196.4M. Looking ahead, the company said that Q3 EPS is expected to come in a range of $0.11-0.13 on revenue of $210-211M (vs. the respective $0.13 and $200.45M consensus estimates) and full-year 2020 EPS to come in a range of $0.92-0.96 on revenue of $828-832M (vs. the respective $0.94 and $806.95M expected). Calls are slightly outnumbering puts with the August 21st 270.00 call topping the most actives list (volume is 149).
  • Jack In The Box Inc. (JACK + $3.50 to $86.52): The fast food chain reported fiscal Q3 earnings of $1.37 per share, excluding non-recurring items ($0.34 beat) on revenue that rose 9.0% year-over-year to $242.48M (above the $239.58M expected) as same-store sales increased 4.1% year-over-year. Restaurant-Level Margin, a non-GAAP measure, decreased 160 basis points to 25.4% from 27.0% year-over-year. The company said that it had ~$196.9M in cash, of which $159.5M was unrestricted cash, at the end of the third quarter. Calls and puts are trading roughly even with the August 21st 80.00 put garnering the most attention from traders (volume is 162).

 

New 52-week highs (190 new highs today): Advanced Mirco Devices Inc. (AMD + $0.54 to $85.85), Freeport-McMoran Inc. (FCX + $0.40 to $14.37), Lowe’s Companies (LOW + $0.60 to $150.86), Wayfair Inc. (W + $5.35 to $306.75)

Notable Call Activity

Hewlett Packard Enterprise Company (HPE + $0.18 to $10.14): Calls are outpacing puts roughly 50:1 as all of the top 10 most actively traded contracts are calls. Topping the most actives list is the September 18th 10.00 call as volume is 34,950 versus open interest of 334, so we know that this primarily represents new positioning. Transactions on this contract mostly consisted of various-sized blocks that were being bought for between $0.83 and $0.85 each which suggests bullish intent. Also seeing some new positioning on the most actives list is the August 7th 10.50 call (volume is 2,755 vs. open interest of 175) and 10.00 call (volume is 1,625 vs. open interest of 992). Note: HPE is scheduled to report fiscal Q3 earnings on August 25th after the market close, so the positioning on the September 18th expiration captures the potential impact of this event.   

Today’s Bearish Activity   

Multiple stocks are moving lower this morning after reporting earnings:

  • Becton, Dickinson and Company (BDX - $24.35 to $259.08): The medical technology company reported Q3 earnings of $2.20 per share, excluding non-recurring items ($0.13 beat) on revenue that fell 11.4% year-over-year to $3.86B (below the $3.96B expected). The company issued downside guidance as full-year 2020 EPS is expected to come in a range of $9.80-10.00 on revenue of $16.83-16.92B (below the respective $10.38 and $17B consensus estimates). Puts are outnumbering calls nearly 2:1 with the December 18th 230.00 put being the most actively traded contract (volume is 276).
  • Fastly Inc. (FSLY - $22.22 to $86.70): The content delivery network reported Q2 earnings of $0.02 per share, excluding non-recurring items ($0.03 beat) on revenue that rose 61.7% year-over-year to $74.66M (above the $71.45M expected). Looking ahead, the company said that it expects to report a Q3 loss of $0.01 per share on revenue of $73.5-75.5M (above the respective ($0.04) and $72.21M consensus estimates). Calls are outnumbering puts roughly 5:3 with the August 7th 95.00 call garnering the most attention from traders (volume is 5,942).
  • Wix.com Ltd. (WIX - $33.40 to $276.19): The website creation company reported a Q2 loss of $0.26 per share ($0.51 miss) on revenue that increased 27.3% year-over-year to $236.1M (above the $233.21M expected). The company said that Q3 revenue is expected to come in a range of $247-250M vs. the $249.18M. Calls are outnumbering puts nearly 3:1 with the August 21st 300.00 call seeing the most action from traders (volume is 387). 

 

New 52-week lows (2 new lows today): HSBC Holdings PLC (HSBC - $0.50 to $21.32), Orchard Therapeutics PLC (ORTX - $0.26 to $4.63)

Notable Put Activity

SPDR S&P Biotech ETF (XBI - $0.98 to $113.41): Puts are outpacing calls better than 8:1 which is primarily being driven by a couple of blocks that simultaneously traded on the November 20th expiration:

  • 110.00 put (open interest is 3,118): A 3,793 block was bought for $8.15 when the bid/ask spread was $8.00 x $8.25.
  • 100.00 put (open interest is 6,204): A 3,793 block was sold for $4.65 when the bid/ask spread was $4.60 x $4.85.

It’s difficult to be certain but it appears that a $10.00-wide bear put spread was established for a net debit of $3.50 (x 3,793 contracts x 100 multiplier, excluding commissions) which suggests that the block trader believes that XBI will close below the break-even price of $106.50 at expiration.

Volume Signals     

Funko Inc. (FNKO + $0.50 to $6.35): Option volume is running at over 10x the daily average of 964 contracts as option traders primarily target the September 18th 7.50 call. Volume on this contract is 8,325 versus open interest of 174, 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 at various times at for between $0.55 and $0.70 each, including a 3,147 block that was bought for $0.55 when the bid/ask spread was $0.30 x $0.60, which suggests bullish intent. The positioning appears to be related earnings-related as FNKO is scheduled to report Q2 earnings after the market close today.  

iShares Russell 1000 Growth ETF (IWF + $0.03 to $211.44): Option volume is running at over 25x the daily average of 248 contracts which is primarily being driven by activity on the September 18th 220.00 call. Volume on this contract is 5,563 (vs. open interest of 8) which nearly entirely consisted of a 4,000 contract block that was bought for $2.00 when the bid/ask spread was $1.50 x $2.10 and (at a different time) a 1,000 contract block that was bought at the ask price of $2.05. We know these blocks are new positions based on the open interest figure and we can assume the intent is bullish in nature given where the trades took place.     

Kandi Technologies Group Inc. (KNDI + $1.23 to $9.94): Option volume is running at nearly 5x the daily average of 5,050 contracts which is primarily being driven by activity on the August 21st 10.00 call. Volume on this contract is 13,318 (vs. open interest of 3,094) which mostly consisted of various-sized blocks that were being bought for between $1.50 and $1.65 each, which suggests bullish intent. Note: KNDI is scheduled to report Q2 earnings on Monday (August 10th) after the market close today, so this positioning captures the potential impact of that event.     

Gauging Volatility

The CBOE Volatility Index (VIX + 0.10 to 23.09) has been on both sides of the unchanged line today (intraday range is 20.97-24.11) as equity markets are mixed around the mid-day mark today (DJI + 15, SPX - 1, COMPX + 16). VIX option volume has been tepid today (currently missing from the top 10 most actives list) and the activity has been call-biased (the volume put/call ratio is currently 0.39). The most actively traded contract is the September 16th 40.00 call as volume is 5,113 versus open interest of 43,870.

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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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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