Today's Options Market Update

Stocks Higher Around Midday as Yields Ease

May 9, 2024 Nathan Peterson

Stocks are pushing into positive territory around midday, helped by a modest pullback in yields.

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Attention initially shifted overseas Thursday, where fresh data hinted at surprising vigor from China while the Bank of England signaled it might cut rates this summer. U.S. stocks struggled for a foothold earlier, thanks partly to rising Treasury yields following China's report.

However, yields soon backtracked and stocks clawed back some of their earlier losses after a surprising spike in U.S. Weekly Initial Jobless Claims that, along with last week's April jobs report, appeared to signal a slower labor market. Claims bumped up to 231,000 from 209,000 the prior week, hitting the highest level since last August.

Continuing claims of 1.785 million remained low but rose from 1.768 million the prior week. The 10-year yield slipped back below 4.5% after the news, and this appeared to reduce pressure on stocks.

The U.S. data came after China reported solid gains in April imports and exports, helping markets there continue their rally. Imports rose 8.4%, almost doubling analysts' expectations, while exports climbed 1.5%. Crude oil rose on the news, and the tidings might have initially lifted U.S. yields as well, sending the benchmark 10-year Treasury note yield back above 4.5% earlier today before the jobless claims data sent it back below 4.5%.

Along with data, focus could turn toward shakiness in the U.S. tech sector. Intel (INTC) shares fell after the company warned that it could see sales drop after the U.S. revoked some of the chipmaker's export licenses for China, Reuters reported. Most major mega-cap U.S. tech firms are under pressure this morning in premarket trading, which could signal tough sledding ahead.

Morning Rush

The 10-year Treasury note yield ($TNX) is lower by ~3 basis points to 4.461%.

The U.S. Dollar Index ($DXY) is lower by 0.24% to 105.30.

The Cboe Volatility Index® ($VIX) has been in positive territory all day and was last seen higher by 0.09 at 13.09.

WTI Crude Oil (/CL) is up roughly 0.52% to $79.40 per barrel.

Gold prices have traded in a range of $2,312.90 to $2,345.80 and were last seen trading 0.67% higher to $2,338.10/oz.

Natural Gas prices have traded in a range of $2.153-2.313 so far today and were last seen trading ~5% higher to $2.229/MMBtu.

Bitcoin (/BTC) is currently up roughly 0.55% to 61,511.90 today.

Source: Schwab Center for Financial Research

Today's Bullish Activity

Leading the point gainers list this morning is Equinix Inc. (EQIX + $77.29 to $777.00) after the digital infrastructure real estate investment trust (REIT) reported Q1 fund from operations of $8.86 per share, excluding non-recurring items ($0.26 beat) on revenue that rose 6.5% year-over-year (YoY) to $2.13B (slightly below the $2.14B expected). Looking ahead, the company said that Q2 revenue is expected to come in a range of $2.148-2.168B (below the $2.18B FactSet consensus estimates) with full-year 2024 (FY24) revenue that is expected to come in a range of $8.692-8.792B (below the $8.85B FactSet consensus estimate). Puts are outnumbering calls nearly 2:1 with the May 17^th 700.00 put seeing the most action from traders (volume is 241).

Also trading to the upside this morning is AppLovin Corp. (APP + $10.89 to $84.89) after the mobile app and game developer reported Q1 earnings of $0.67 per share, excluding non-recurring items ($0.10 beat) on revenue that rose 47.9% YoY to $1.06B (above the $970M FactSet consensus estimate). The company also issued upside guidance as Q2 revenue is expected to come in a range of $1.06-1.08B versus the $1.0B FactSet consensus estimate. Calls are outnumbering puts ~2:1 with the May 24^th 100.00 call being the highest volume contract (volume is 7,854).

New 52-week highs (212 new highs today): Amazon.com Inc. (AMZN + $2.72 to $190.72), Goldman Sachs Group (GS + $6.23 to $453.18), Markel Corp. (MKL + $16.43 to $1,632.26)

Notable Call Activity

Some unusual call activity (~7:1 calls over puts) is being seen in Napco Securities Technologies Inc. (NSSC + $0.38 to $44.83) which is primarily being driven by a 1,000 contract block that was bought on the May 17^th 45.00 call at the ask price of $1.60 (open interest is 796). We know that this block is a new position based on the open interest figure and we can assume that the intent is bullish in nature since the trade took place at the ask price.

Today's Bearish Activity

Gapping down to a two-year low this morning is EPAM Systems Inc. (EPAM - $60.58 to $188.62) after the provider of digital platform engineering and software development services beat quarterly estimates but issued weak guidance earlier this morning. The company reported Q1 earnings of $2.46 per share, excluding non-recurring items ($0.15 beat) on revenue that fell 3.8% YoY to $1.17B (slightly above the $1.16B FactSet consensus estimate). Regarding guidance, the company said that it expects Q2 EPS to come in a range of $2.21-2.29 on Q2 revenue that is expected to come in a range of $1.135-1.145B (below the respective $2.44 & $1.18B FactSet consensus estimates). Option volume is relatively light with the May 17^th 175.00 put being the highest volume contract (volume is 72).

Also trading to the downside this morning is Duolingo Inc. (DUOL - $45.29 to $199.36) even the mobile learning platform beat quarterly estimates and provided in-line guidance. The company reported Q1 earnings of $0.57 per share ($0.30 beat) on revenue that rose 44.9% year-over-year to $167.7M (above the $165.6M FactSet consensus estimate). Q1 paid subscribers increased 54% YoY to 7.4M with Q1 daily active users (DAUs) increased 54% YoY to 31.4M. Looking ahead, the company said that Q2 revenue is expected to come in a range of $175-177.5M (vs. the $176.92M FactSet consensus estimate) with FY24 revenue expected to come in a range of $726.5-735.5M (vs. the $728.38M FactSet consensus estimate). Calls are slightly outnumbering puts with the May 17^th 240.00 call leading the way (volume is 875).

New 52-week lows (76 new lows today): Acadia Pharmaceuticals Inc. (ACAD - $1.56 to $15.57), Exact Sciences Inc. (EXAS - $4.56 to $54.92), SolarEdge Technology Inc. (SEDG - $4.71 to $52.84)

Notable Put Activity

Some unusual put activity (~8:1 puts over calls) is being seen in Zoominfo Technologies Inc. (ZI + $0.34 to $12.48) as option traders primarily target the July 19^th 11.00 put. Volume on this contract is 26,592 versus open interest of 2,617, so we know that the activity primarily represents fresh 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 $0.20 each, which suggests bearish intent.

Volume Signals

California Water Service Group (CWT + $1.11 to $52.44): Option volume is running at ~90x the daily average on this utility which is primarily being driven by a couple of fairly large blocks that were seen simultaneously trading on the June 21^st expiration earlier this morning:

50.00 call (open interest is 60): A 500 contract block traded for $2.30, directly in the middle of the $2.10 x $2.50 bid/ask spread.
55.00 call (open interest is 7): A 500 contract block was sold for $0.20 when the bid/ask spread was $0.15 x $0.40.

We know that both of these blocks are new positions based on the respective open interest figures and it appears that a $5.00-wide bull call spread was established for a net debit of $2.10 (x 500 contracts x 100 multiplier, excluding commissions). The positioning suggests that the block trader believes that CWT will remain close above the break-even price of $52.10 at expiration.

Bumble Inc. (BMBL + $0.99 to $11.26): Option volume is running at ~14x the daily average on this dating app which is primarily being driven by a 45,760 contract block that was sold on the June 21^st 9.00 put at the bid price of $0.10 (open interest is 5,137). We know that this block is a new position based on the open interest figure and we can assume that the block trader believes that BMBL will remain above the $9.00 price level and/or is comfortable taking a long 4.576M share position in the stock at an effective purchase price of $8.90 in the event that BMBL closes below $9.00 at expiration.

Silvercorp Metals Inc. (SVM + $0.15 to $3.51): Option volume is running at over 9x the daily average on this silver miner which is primarily being driven by activity on the October 18^th 5.00 call. Volume on this contract is 5,405 (vs. open interest of 2,806), which mostly consisted of two large blocks (1,910 & 1,909) that were bought at the same time for $0.24 when the bid/ask spread was $0.15 x $0.25. Assuming both of these blocks are new positions, the positioning on both blocks appears to be bullish in nature since the trades took place above the midpoint of the bid/ask spread.

Gauging Volatility

The Cboe Volatility Index (VIX + 0.09 to 13.09) has been in positive territory all day today (the intraday is 13.07-13.29) as equity markets are higher across the board around the mid-day mark (DJI + 244, SPX + 20, COMPX + 44). VIX option volume has been below average today as the index is missing from the “Top Volume by Underlying” list. The volume put/call ratio is currently 0.54 with the highest volume contract being the June 18^th 20.00 call (volume is 16,680 vs. open interest of 191,505).

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