Trading | May 4, 2021

Today's Options Market Update

Stocks in risk-off mode, led by rout in technology.

U.S. equities are lower in midday trading after a solid start to May, with the Information Technology and Communications Services sectors feeling the brunt of the pressure. Meanwhile investors are fleeing stocks tied to the economic reopening to give back some of the gains seen Monday. Earnings season revved back up, with CVS Health, Pfizer and DuPont all posting better-than-expected results and offering solid outlooks. In light economic news, the trade deficit widened, while factory orders increased, and durable goods orders were revised upward. Treasuries have turned higher, with yields seeing pressure, and the U.S. dollar is rebounding off yesterday's loss, while gold is little changed and crude oil prices are gaining ground. Asia finished mixed with markets in China and Japan remaining closed for holidays, while Europe has turned lower, taking its cue from action stateside.

At 10:56 a.m. ET, the Dow Jones Industrial Average is down 0.7%, the S&P 500 Index is losing 0.9%, and the Nasdaq Composite is tumbling 2.2%. WTI crude oil is rising $0.70 to $65.19 per barrel and Brent crude oil is increasing $1.01 to $68.57 per barrel. The Bloomberg gold spot price is nudging $0.23 higher to $1,793.11 per ounce, and the Dollar Index—a comparison of the U.S. dollar to six major world currencies—is 0.4% higher at 91.29. Natural Gas prices have traded in a range of $2.932-3.001 and were last seen trading lower by $0.025 (or -0.84%) to $2.941/MMBtu.

Source: Schwab Center for Financial Research

Today’s Bullish Activity

Multiple names are moving higher following upbeat earnings announcements:

  • Arconic Corp. (ARNC + $4.01 to $33.37): The aluminum sheet, plate and extrusions provider reported Q1 earnings of $0.46 per share, excluding non-recurring items ($0.14 beat) on revenue that fell 4.0% year-over-year to $1.68B (above the $1.58B expected). The company raised fiscal-year 2021 guidance as revenue is now expected to come in a range of $7.1-7.4B (from a prior view of $6.6-6.9B and vs. the $6.62B consensus estimate). In addition, the company’s Board of Directors approved a two-year $300M share repurchase program. Shares of ARNC are trading at all-time highs this morning. Calls are outpacing puts roughly 100:1 with the May 21st 35.00 call leading the way (volume is 1,214).  
  • CVS Health Corp. (CVS + $2.81 to $80.50): The drugstore chain reported Q1 earnings of $2.04 per share, excluding non-recurring items ($0.33 beat) on revenue that rose 3.5% year-over-year to $69.1B (above the $68.33B expected). In terms of guidance, the company said that fiscal-year 2021 EPS is expected to come in a range of $7.56-7.68 (vs. the $7.52 consensus estimate) with cash flow from operations expected to come in a range of $12.0-12.5B. Calls are outpacing puts roughly 6:1 with the May 7th 80.00 call garnering the most attention from traders (volume is 7,434).
  • Gartner Inc. (IT + $25.92 to $223.23): The research and advisory firm reported Q1 earnings of $2.00 per share ($0.95 beat) on revenue that increased 8.3% year-over-year to $1.1B (above the $1.05B expected). Shares of IT are trading at all-time highs this morning. Puts are slightly outnumbering calls with the May 21st 220.00 put being the most actively traded contract (volume is 82).

 

New 52-week highs (123 new highs today): Alcoa Corp. (AA + $1.00 to $38.61), Home Depot Corp. (HD + $0.39 to $330.66), Nucor Corp. (NUE + $1.46 to $87.16)

Notable Call Activity

Some unusual call activity (~20:1 over puts) is being seen in online travel company Sabre Corp. (SABR - $2.01 to $13.05) which is primarily being driven by a couple of large blocks that simultaneously traded on the July 16th expiration:

  • 15.00 call (volume is 10,714 versus open interest of 34,774): A 7,500 contract block was bought at the ask price of $0.49.
  • 17.00 call (volume is 7,648 versus open interest of 9,402): A 7,500 contract block was sold for $0.17 when the bid/ask spread was $0.15 x $0.21.

Assuming these blocks are new positions, it appears that a $2.00-wide bull call spread was established for a net debit of $0.32 (x 7,500 contracts x 100 multiplier, excluding commissions), which would suggest that the block trader believes that SABR will close above $15.32 at expiration.

Also worth noting is a 2,000 contract block that was bought on the June 18th 13.00 call at the ask price of $0.85 (open interest is 3). 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 at the ask price.

Today’s Bearish Activity    

Several stocks are trading to the downside following quarterly earnings announcements:

  • Avis Budget Group (CAR - $4.14 to $84.87): The U.S. rental car company reported a Q1 loss of $0.46 per share, excluding non-recurring items ($2.03 beat) on revenue that fell 21.7% year-over-year to $1.37B (above the $1.24B expected) as revenue per day increased 12% year-over-year. Commenting on the quarter the company stated, "As demand started to recover in the Americas in the back half of the quarter, we optimized our fleet, resulting in higher utilization, and took advantage of pricing opportunities. We continue to get new car deliveries every day and believe we can increase our fleet utilization efficiency to capture increased demand." Puts are outnumbering calls roughly 6:1 with the May 21st 82.50 put topping the most actives list (volume is 285).
  • iRobot Corp. (IRBT - $12.75 to $91.21): The maker of consumer robots reported Q1 earnings of $0.41 per share, excluding non-recurring items ($0.32 beat) on revenue that rose 57.5% year-over-year to $303.26M (above the $268.04M expected). In terms of guidance, the company said that fiscal-year 2021 EPS is expected to come in a range of $3.00-3.25 on revenue that is expected to come in a range of $1.67-1.71B (vs. the respective $3.14 and $1.65B consensus estimates). Calls are outpacing puts roughly 10:1 with the May 21st 100.00 call seeing the most action from traders (volume is 3,741).
  • SolarEdge Technologies Inc. (SEDG - $35.06 to $225.00): The smart energy technology company reported Q1 earnings of $0.98 per share ($0.04 miss) on revenue that fell 6.0% year-over-year to $405.5M (above the $395.73M expected). Revenue related to sale of solar products increased 15% from the prior quarter to $376.4M, but that figure is down 8% year-over-year. The company issued in-line guidance as Q2 revenue is expected to come in a range of $445-465M versus the $446.37M consensus estimate. Puts are outnumbering calls roughly 4:1 with the June 18th 220.00 put being the most actively traded contract (volume is 1,072).

 

New 52-week lows (39 new lows): Arco Platform Ltd. (ARCE - $0.71 to $24.45), iRhythm Technologies Inc. (IRTC - $2.77 to $72.36), Splunk Inc. (SPLK - $4.01 to $118.96)

Notable Put Activity  

Some unusual put activity (~32:1 over calls) is being seen in Dell Technologies Inc. (DELL - $1.32 to $96.46) which is primarily being driven by activity on the May 21st 90.00 put. Volume on this contract is 7,083 versus open interest of 958, 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 $0.38 and $0.48 each, which suggests bullish intent.

Ericsson PLC (ERIC - $0.44 to $13.44): A 7,500 contract block was sold on the June 18th 13.00 put at the bid price of $0.23 (open interest is 1,040). We know this block is a new position given the open interest figure and we can assume that the block trader believes that ERIC will close above the $13.00 price level and/or is comfortable taking a long 750,000 share position at an effective purchase price of $12.77 in the event that it closes below this level at expiration.

Volume Signals       

WisdomTree Investments Inc. (WETF + $0.19 to $7.05): Option volume is running at nearly 40x the daily average of 115 contracts as option traders primarily target the September 17th 8.00 call. Volume on this contract is 2,635 versus open interest of 45, so it’s likely that this is nearly all new positioning. The majority of the transactions on this contract consisted of various-sized blocks that were being bought at various times at the ask prices of $0.35 and $0.40 each, which suggests bullish intent.

Yext Inc. (YEXT - $0.75 to $12.88): Option volume is running at nearly 23x the daily average of 223 contracts as option traders primarily target the June 18th 15.00 call. Volume on this contract is 8,604 versus open interest of 741, 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 $0.50 and $0.70 each (including a 1,790 contract block that was bought at the ask price of $0.55), which suggests bullish intent.

VanEck Vectors Russia ETF (RSX + $0.10 to $26.19): Option volume is running at nearly 18x the daily average of 817 contracts which is primarily being driven by a 12,450 contract block that was bought on the January 2022 27.00 call at the ask price of $2.00 (open interest is 30). 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 at the ask price.

Kansas City Southern Inc. (KSU + $1.14 to $294.64): Option volume is running at roughly 5x the daily average of 1,227 contracts which is primarily being driven by three blocks that simultaneously traded on three contracts on the June 18th expiration:

  • 320.00 call (open interest is 1,349): A 1,875 contract block traded at the ask price of $2.15.
  • 310.00 call (open interest is 152): A 1,875 contract block traded for $5.65 when the bid/ask spread was $2.60 x $5.70.
  • 280.00 put (open interest is 185): A 1,875 contract block traded at the bid price of $5.80.

We know these blocks are new positions based on the respective open interest figures and while it’s difficult to be certain, it appears that a (bullish) risk reversal call spread was established for a net debit of $2.00 (x 1,875 contracts x 100 multiplier, excluding commissions), which suggests that the block trader believes that KSU will close above the break-even price of $312.00 at expiration. If you read last Tuesday’s blog (or watched last Tuesday’s Schwab Live Daily show Today’s Options Market Recap), you might recall that KSU was highlighted for a 5,000 x 5,000 x 5,000 contract (bullish) risk reversal call spread using the same strike prices as above but on the May 21st expiration. Note: back on April 20th KSU received a $33.7B buyout offer from Canadian National, which was above Canadian Pacific’s prior unsolicited bid of $25B.

Gauging Volatility

The CBOE Volatility Index (VIX + 2.64 to 20.95) has been on both sides of the unchanged line today (the intraday range is 18.11-21.85) as equity markets are firmly lower around the mid-day mark today (DJI - 148, SPX - 50, COMPX - 367). VIX option volume has been pretty average today at 299,236 contracts (currently #7 on the top 10 most actives list) and the activity has been definitively call-biased (the volume put/call ratio is 0.13). The most actively traded contract is the June 16th 40.00 call as volume is 21,101 versus open interest of 59,330.      

ChemoCentryx Inc. (CCXI - $18.80 to $30.01): Average implied volatility on this clinical-stage biotech company is up to 182% this morning from yesterday’s 112% closing level. 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.