Today's Options Market Update

Stocks march higher, driven by strong data, earnings.

Note: There will not be a Today’s Options Market Update released tomorrow (April 16th) but publication will resume on Monday (April 19th).

Most U.S. stocks are trading higher following a flood of upbeat earnings reports from Bank of America, PepsiCo, Dow member UnitedHealth Group, and Citigroup. Moreover, the economic calendar delivered some strong data points, headlined by a larger-than-expected rebound in retail sales, a much bigger-than-anticipated deceleration in jobless claims to below the 600,000 mark, and faster expansion rates in manufacturing output in the Philadelphia and New York Regions. Treasuries are gaining ground despite the data that also continued to show input pricing pressures remain robust, fostering some downside moves in yields and likely overshadowing some of the upbeat results out of the banking sector. Energy issues are also lagging as crude oil prices are reacting modestly to the strong economic data. The U.S. dollar is dipping and gold is gaining ground. Asia finished mixed and Europe is diverging amid the sluggishness in Financials and Energy.

At 10:49 a.m. ET, the Dow Jones Industrial Average is up 0.8%, the S&P 500 Index is rising 0.9%, and the Nasdaq Composite is gaining 1.1%. WTI crude oil is trading $0.17 higher to $63.32 per barrel and Brent crude oil is increasing $0.29 to $66.87 per barrel. The Bloomberg gold spot price is advancing $30.07 to $1,766.50 per ounce, and the Dollar Index—a comparison of the U.S. dollar to six major world currencies—is dipping 0.1% to 91.61. Natural Gas prices have traded in a range of $2.583-2.628 and were last seen trading lower by $0.006 (or 00.23%) to $2.612/MMBtu.

Source: Schwab Center for Financial Research

Today’s Bullish Activity

Breaking out to all-time highs this morning is United Health Group Inc. (UNH + $12.02 to $387.65) after the health care services provider reported Q1 earnings of $5.31 per share, excluding non-recurring items ($0.94 beat) on revenue that rose 0.9% year-over-year to $70.2B (above the $69.13B consensus estimate). In addition, the company raised fiscal-year 2021 EPS to a range of $18.10-18.60 from a prior view of $17.75-18.25, which includes approximately $1.80 per share in potential net unfavorable impact related to continuing COVID-19 effects. Calls are outnumbering puts roughly 2:1 with the April 16th 400.00 call garnering the most attention from traders (volume is 1,616).

Also trading to the upside is American Eagle Outfitters Inc. (AEO + $1.37 to $34.35) after the retailer said that Q1 revenue is tracking above $1B (above the $903.8M consensus estimate) and Q1 operating income is expected to be approximately $120M, which the company is attributing to accelerating demand. The company’s Q1 revenue guidance represents a mid-teens year-over-year increase compared to pre-COVID Q1 last year. Puts are outnumbering calls roughly 2:1 with the April 16th 34.00 put being the most actively traded contract (volume is 1,003).

Lastly, Dell Technologies Inc. (DELL + $4.21 to $96.91) is moving higher after the PC maker said that it is spinning off its ~81% stake in cloud computing software maker VM Ware Inc. (VMW + $1.17 to $156.66). JP Morgan bumped their price target on DELL to $120.00 from $103.00 following the announcement. DELL calls are outnumbering puts roughly 4:1 with the April 16th 100.00 call leading the way (volume is 9,924).

 

New 52-week highs (127 new highs today): Allstate Corp. (ALL + $0.56 to $120.98), Cigna Corp. (CI + $3.16 to $252.60), Home Depot Inc. (HD + $2.30 to $322.37)

Notable Call Activity

Huya Inc. (HUYA - $0.34 to $17.68): Calls are outpacing puts ~100:1 as option traders primarily target the April 23rd 19.00 call as volume is 6,216 versus open interest of 657. The bulk of the activity on this contract consisted of various-sized blocks that were being bought at various times at the ask prices of $0.50 and $0.55 each (suggesting bullish intent).

Omnicom Group Inc. (OMC + $1.66 to $80.28): Calls are outpacing puts ~100:1 which is primarily being driven by activity on the May 21st 80.00 call (volume is 2,523 vs. open interest of 91). The bulk of the activity on this contract consisted of various-sized blocks that were being bought at various times for between $3.24 and $3.30 each when the bid/ask spread was $2.50 x $3.30 (including an 834 contract block that was bought at the ask price of $3.30), which suggests bullish intent. Note: OMC Q1 earnings are slated to be released next Tuesday (April 20th) before the bell so this positioning captures the potential impact of that event.   

Today’s Bearish Activity    

Shares of Taiwan Semiconductor Ltd. (TSM - $3.61 to $117.23) are trading lower after the chip maker reported Q1 earnings of $0.96 per share ($0.01 beat) on revenue that rose 25% year-over-year to $12.92B (above the $12.86B expected). The company said that its auto industry customers can expect chip shortages to begin easing next quarter but noted that the overall chip shortage is expected to last throughout 2021, and potentially into next year. Looking ahead, the company said that Q2 revenue is expected to come in a range of $12.9-13.2B (vs. the $13.15B consensus estimate). Calls are outnumbering puts roughly 4:1 with the April 16th 120.00 call being the most actively traded contract (volume is 5,481).  

 

New 52-week lows (7 new lows): Aspen Group Inc. (ASPU + $0.04 to $5.28), Hyliion Holdings Corp. (HYLN - $0.30 to $9.28), XL Fleet Corp. (XL - $0.16 to $6.96)

Notable Put Activity  

Some unusual put activity is being seen in the Invesco Solar ETF (TAN - $1.28 to $83.72) which is primarily being driven by activity on the May 21st 77.00 put. Volume on this contract is 6,676 versus open interest of 79, so we know that this primarily represents new positioning. The bulk of the transactions on this contract consisted of various-sized blocks that were being bought at various times at the ask price of $2.00, which suggests bearish intent.

AT&T Inc. (T + $0.01 to $29.74): Puts are outpacing calls better than 2:1 today which is primarily being driven by activity on two contracts:

  • 4/23/2021 29.00 put (volume is 15,275 vs. open interest of 6,266): The majority of the transactions on this contract consisted of various mid-sized blocks that were being sold for between $0.17-0.19 each.  
  • 4/30/2021 29.00 put (volume is 13,697 vs. open interest of 3,566): The majority of the transactions on this contract consisted of various mid-sized blocks that were being bought for between $0.33-0.35 each.  

It’s difficult to be certain, but it appears that one or more long calendar put spreads were established here using the 29.00 strike.

Volume Signals       

LKQ Corp. (LKQ + $0.30 to $44.20): Option volume is running at roughly 40x the daily average of 175 contracts which is primarily being driven by a 5,000 contract block that was bought on the May 21st 42.50 put at the ask price of $1.30 (open interest is 115). 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. LKQ is scheduled to report Q1 earnings on April 29th before the market opens so this positioning captures the potential impact of that event.    

Keurig Dr. Pepper Inc. (KDP + $0.50 to $35.86): Option volume is running at roughly 20x the daily average of 1,617 contracts which is primarily being driven by a 11,900 contract block that was bought on the May 21st 36.00 call for $1.08 when the bid/ask spread was $1.00 x $1.10 (open interest is 997). 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. KDP is scheduled to report Q1 earnings on April 29th so this positioning captures the potential impact of that event.    

The Interpublic Group of Companies Inc. (IPG + $0.72 to $30.64): Option volume is running at roughly 19x the daily average of 356 contracts as option traders primarily target the May 21st 30.00 call. Volume on this contract is 7,421 versus open interest of 119, so we know that this primarily represents new positioning. The bulk of the activity consisted of various-sized blocks that were being bought at various times at the ask price of $1.35, which suggests bullish intent. IPG is scheduled to report Q1 earnings on April 28th before the market opens so this positioning captures the potential impact of that event.    

GlaxoSmithKline PLC (GSK + $0.49 to $35.85): Option volume is running at roughly 13x the daily average of 2,079 contracts which is primarily being driven by activity on two contracts:

  • 5/21/2021 40.00 call (volume is 7,507 vs. open interest of 3,113): The activity included a 4,457 contract block that was bought for $0.32 when the bid/ask spread was $0.20 x $0.35. 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.   
  • 8/20/2021 40.00 call (volume is 5,701 vs. open interest of 1,371): The majority of the transactions on this contract consisted of various-sized blocks that were being bought at the ask price of $0.95 (suggesting bullish intent).  

Gauging Volatility

The CBOE Volatility Index (VIX - 0.21 to 16.77) has been in negative territory all day today (the intraday range is 15.94-16.92) as equity markets are higher across the board around the mid-day mark today (DJI + 300, SPX + 38, COMPX + 136). VIX option volume has been above average today at 328,449 contracts (#10 on the top 10 most actives list) with the most actively traded contract being the April 21st 26.00 put as volume is 23,596 versus open interest of 99,264.    

MicroStrategy Inc. (MSTR - $6.57 to $728.93): Average implied volatility is up 22 ticks (from 80% to the current level of 102%) over the past five trading days. 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.

About the author

Nathan Peterson

Director of Derivatives Analysis, Schwab Center for Financial Research