Market Commentary | May 24, 2022

Today's Options Market Update

Stocks drop following concerning corporate guidance, soft data.

U.S. equities are trading lower with conviction remaining hamstrung and the markets unable to extend yesterday's solid gains. The markets continue to face a number of bearish headwinds, chiefly stubbornly high inflation pressures that have forced the Fed to begin an aggressive monetary policy tightening campaign. The economic calendar isn't helping matters, as preliminary data on the manufacturing and services sectors were below estimates, new home sales plunged, and a read on regional manufacturing activity surprisingly fell into contraction territory. Global preliminary May reports on manufacturing and services are also being digested, with growth in the Eurozone and U.K. slowing more than expected. Meanwhile, inflation, labor costs, and supply chain issues remain evident as earnings reports continue to pour in, with Snap falling sharply after lowering its guidance. Moreover, Best Buy posted mixed results, Abercrombie & Fitch reported an unexpected loss, and Autozone topped quarterly estimates. Treasuries are trading higher to apply downside pressure on yields, and the U.S. dollar is adding to yesterday's drop. Crude oil prices are mixed and gold is gaining ground. Asia finished lower as China led the way, and Europe is mostly trading to the downside.  

As of 10:50 a.m. ET, the Dow Jones Industrial Average is down 1.4%, the S&P 500 is declining 2.2%, and the Nasdaq Composite is decreasing 3.3%. WTI crude oil is ticking $0.01 lower at $110.28 per barrel, and Brent crude oil is increasing $0.31 at $113.73 per barrel. The gold spot price is trading $16.30 higher to $1,864.10 per ounce, and the Dollar Index is falling 0.4% at 101.72. Natural Gas prices have traded in a range of $8.605-8.93 and were last seen trading lower by $0.058 (or -0.66%) to $8.686/MMBtu.

Source: Schwab Center for Financial Research

Today’s Bullish Activity

Shares of Zoom Video Communications Inc. (ZM + $2.47 to $91.80) are moving higher this morning after the video communications platform reported Q1 earnings of $1.03 per share, excluding non-recurring items ($0.15 beat) on revenue that rose 12.3% year-over-year to $1.07B (in-line with estimates) as enterprise customers increased 24% year-over-year to 189,900. Looking ahead, the company said that Q1 EPS is expected to come in a range of $0.90-0.92 on revenue that is expected to come in a range of $1.115-1.12B, which is above the respective $0.87 and $1.11B consensus estimates. Calls and puts are trading roughly even with the May 27th 100.00 call leading the Top Volume list (volume is 6,959).

Also trading to the upside this morning is Best Buy Inc. (BBY + $1.24 to $73.83) after the electronics retailer reported Q1 earnings of $1.57 per share ($0.01 beat) on revenue that fell 8.5% year-over-year to $10.65B (above the $10.43B expected) as comparable same-store sales declined 8.0% year-over-year (better than the -9.4% expected). The company lowered guidance as fiscal-year 2023 EPS is now expected to come in a range of $8.40-9.00 (from $8.85-9.15) on revenue that is now expected to come in a range of $48.30-49.90B (from $49.30-50.80B) with comparable same-store sales now expected to decline 3.0-6.0% (from -1.0 to -4.0%). Puts are outnumbering calls better than 3:1 with the May 27th 50.00 put seeing the most action from traders (volume is 4,962).

 

New 52-week highs (11 new highs today): Antero Resources Corp. (AR - $0.75 to $38.62), Civitas Resources Inc. (CIVI - $0.88 to $67.64), Conoco Phillips Inc. (COP - $1.21 to $107.81)

Notable Call Activity

Some unusual call activity (~20:1 over puts) is being seen in Clorox Co. (CLX + $0.28 to $139.87) as option traders primarily target the May 27th 146.00 call. Volume on this contract is 21,724 versus open interest of 41, so it’s likely that the volume represents nearly all new positioning. The majority of the transactions on this contract consisted of various-sized blocks that were bought at various times for between $0.45-0.65 each, which suggests bullish intent.

Today’s Bearish Activity    

Shares of Snap Inc. (SNAP - $8.71 to $13.76) are under pressure this morning after the social media company warned that it will likely report revenue and adjusted EBITDA below the low end of its previously issued Q2 guidance. Back on April 21st the company said that Q2 revenue was expected to come in a range of $1.18-1.23B and adjusted EBITDA was expected to be between $0-50M. Snap said that the “macroeconomic environment has deteriorated further and faster than anticipated” since it last issued guidance. Shares of SNAP are trading at a 2-year low this morning. Calls are outnumbering puts ~5:3 with the May 27th 17.00 call being the highest volume contract (volume is 16,730).

Also trading to the downside is Abercrombie & Fitch Co. (ANF - $7.60 to $19.13) after the retailer reported a Q1 loss of $0.27 per share ($0.36 miss) on revenue that rose 4.0% year-over-year to $812.8M (above the $799.33M expected). The company issued downside guidance as Q2 revenue is expected to decline low single-digits (below the +2.0% or $888.38M consensus estimate) and lowered its fiscal-year 2023 revenue outlook to “flat to +2.0%” from a prior view of +2.0-4.0%. Puts are outnumbering calls nearly 3:1 with the May 27th 20.00 put leading the way (volume is 3,727).

 

New 52-week lows (217 new lows today): Advance Auto Parts Inc. (AAP - $6.13 to $177.11), Darden Restaurants Inc. (DRI - $4.36 to $112.05), Lululemon Athletica Inc. (LULU - $18.69 to $254.15)

Notable Put Activity

Some unusual put activity (nearly 4:1 over calls) is being seen in Rivian Automotive Inc. (RIVN - $1.81 to $26.17) which is primarily being driven by activity on the May 27th 24.00 put. Volume on this contract is 43,493 versus open interest of 1,737, so we know that this primarily represents new positioning. The bulk of the transactions on this contract consisted of various-sized blocks that were bought at various times for between $0.44 and $0.50 each, which suggests bearish intent.

Volume Signals

Petroleo Brasileiro S.A. (PBR - $0.65 to $14.14): The 8th highest volume option contract in the market today is the PBR 6/3/2022 14.50 call as volume is 54,809 versus open interest of 22. Over 90% of the volume on this contract is being attributed to a 50,000 contract block that traded for $0.31, directly in the middle of the $0.30 x $0.32 bid/ask spread. We know this block is a new position based on the open interest figure, but we don’t know the intent since the trade took place in the middle of the bid/ask spread.

Schlumberger Ltd. (SLB - $0.82 to $42.99): The 9th highest volume option contract in the market today is the SLB 6/17/2022 47.00 call as volume is 51,865 versus open interest of 597. Over 80% of the volume on this contract is being attributed to a 42,700 contract block that was bought for $0.63 when the bid/ask spread was $0.49 x $0.72. 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.

Smith & Wesson Brands Inc. (SWBI + $0.03 to $13.83): Option volume is running at nearly 8x the daily average on this firearms maker which is primarily being driven by activity on the July 15th 15.00 call. Volume on this contract is 10,245 versus open interest of 179, so we know that the volume 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 $0.80-$0.85 each, which suggests bullish intent.    

Baker Hughes Co. (BKR - $0.05 to $35.66): Option volume is running at nearly 3x the daily average on this oil services company which is primarily being driven by a couple of large blocks that were seen simultaneously trading on the July 15th expiration earlier this morning:

  • 36.00 call (open interest is 438): A 1,300 contract block was bought for $2.31 when the bid/ask spread was $2.25 x $2.35.
  • 39.00 call (open interest is 201): A 1,300 contract block was sold for $1.16 when the bid/ask spread was $1.15 x $1.20.

We know both of these blocks are new positions based on the respective open interest figures and it appears that a $3.00-wide bull call spread was established for a net debit of $1.15 (x 1,300 contracts x 100 multiplier, excluding commissions). The positioning suggests that the block trader believes that BKR will close above the break-even price of $37.15 at expiration.   

Gauging Volatility

The CBOE Volatility Index (VIX + 1.63 to 30.11) has been in positive territory all day today (the intraday range is 29.04-31.07) as equity markets are lower across the board around the mid-day mark (DJI - 265, SPX - 67, COMPX - 325). VIX option volume has been tepid today as the index is currently missing from the “Top Volume by Underlying” list. Today’s options activity has been call-biased (the volume put/call ratio is currently 0.76), with the highest volume contract being the June 15th 30.00 call as volume is 19,842 versus open interest of 124,012.

Alphabet Inc. – Class A (GOOGL - $138.51 to $2,091.50): Average implied volatility is up five ticks (from 34% to 39%) as the stock drops to 52-week lows this morning. 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 Managing Director 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

  • Schwab clients: Contact a Trading Specialist at 800-435-9050 for questions or log in to the Schwab Learning Center.

  • Not yet a client? Learn more about Schwab Trading Services