Market Commentary | October 6, 2022

Today's Options Market Update

Stocks subdued as yields and dollar continue to rise.

U.S. stocks are lower, continuing to give back some of the early-week rally ahead of tomorrow's key September nonfarm payroll report. Inflation pressures that have forced central bank tightening across the world remain a focus of the global markets and the equity markets rallied on optimism that appeared to emerge regarding a potential easing of the pace. However, Treasury yields and the U.S. dollar are rising, continuing to be a major source of uneasiness for the markets. Crude oil prices are gaining ground with the markets digesting yesterday's OPEC+ oil production cut, and gold has turned lower. In earnings news, Constellation Brands and Conagra are trading lower even as both companies topped earnings estimates. With the labor report looming, jobless claims accelerated slightly more than expected. Asia finished mostly higher, and Europe is mostly lower as the markets in the region contend with the myriad headwinds.      

At 10:55 a.m. ET, the Dow Jones Industrial Average is down 0.5%, the S&P 500 Index is decreasing 0.4%, and the Nasdaq Composite is dipping 0.2%. WTI crude oil is rising $0.76 to $88.52 per barrel, and Brent crude oil is increasing $0.51 at $93.88 per barrel. The gold spot price is trading $2.50 lower to $1,718.30 per ounce, and the Dollar Index is nearly advancing 0.8% to 111.86. Natural Gas prices have traded in a range of $6.868-7.188 and were last seen trading higher by $0.157 (or +2.27%) to $7.087/MMBtu.

Source: Schwab Center for Financial Research

Today’s Bullish Activity

Moving higher this morning is Perion Network Ltd. (PERI + $1.64 to $22.00) after the advertising technology company said that it expects Q3 revenue to be ~$158M, versus the $155.44M consensus estimate, and Q3 adjusted EBITDA to increase 76.0% year-over-year to ~$31M. Today’s ~6% move puts PERI above the 200-day Simple Moving Average (SMA) of $20.85. Calls are outnumbering puts ~4:1 with the October 21st 22.50 call seeing the most action from traders (volume is 472).

Also trading to the upside is Verizon Communications Inc. (VZ + $0.70 to $39.45) after Oppenheimer upgraded the telecommunications giant to “Outperform” from “Perform” and put a $50.00 price target on the stock. Oppenheimer analyst Tim Horan said that that he expects strong mobile bundling conversion and accelerating enterprise adoption for the company, adding that the stock price is right after years of underperformance and a 6.6% dividend yield. Calls are outnumbering puts ~4:1 with the October 7th 39.00 call leading the way (volume is 5,276).

 

New 52-week highs (28 new highs today): Akero Therapeutics Inc. (AKRO + $1.24 to $39.55), LPL Financial Holdings Inc. (LPLA + $3.69 to $245.08), Pacific Gas & Electric Co. (PCG + $0.07 to $14.82)

Notable Call Activity

Some unusual call activity (~100:1 over puts) is being seen in Nano X Imaging Ltd. (NNOX + $0.69 to $12.72) as option traders primarily target the 13.50 call which expires tomorrow (October 7th). Volume on this contract is 10,871 versus open interest of 43, so it’s likely that nearly all of the volume represents fresh positioning. The bulk of the transactions on this contract consisted of various-sized blocks that were being bought at various times for between $0.15-$0.30 each, which suggests bullish intent.

Today’s Bearish Activity    

Moving lower this morning is AutoNation Inc. (AN - $4.54 to $100.40) after J.P. Morgan downgraded the automotive retailer from “Overweight” to “Equal Weight” and put a $125.00 price target on the stock. The brokerage cited AutoNation’s relatively bad risk/reward dynamics and believes there is a negative bias towards the franchise auto dealer space following CarMax’s results. Calls are slightly outnumbering puts with the October 21st 110.00 call being the highest volume contract (volume is 236). 

Also trading to the downside is AngioDynamics Inc. (ANGO - $3.53 to $18.01) after the medical technology company reported a fiscal Q1 loss of $0.06 per share, excluding non-recurring items ($0.04 miss) on revenue that rose 5.8% year-over-year to $81.5M (below the $83.43M consensus estimate). In terms of guidance, the company reaffirmed full-year 2023 EPS of $0.01-0.06 and FY23 revenue of $342-348M versus the respective $0.02 and $344.13M consensus estimates. Option volume is relatively light with the November 18th 17.50 put being the highest volume contract (volume is 30).

 

New 52-week lows (123 new lows today): American Tower Corp. (AMT - $7.61 to $206.53), Duke Energy Cop. (DUK - $2.08 to $91.94), Welltower Inc. (WELL - $2.06 to $60.26)

Notable Put Activity

Some unusual put activity is being seen in the SPDR Energy Select Sector Fund (XLE + $1.32 to $82.32) which is primarily being driven by several large block trades:

  • November 18th 64.00 put (open interest is 1,338): A 25,000 contract block was sold at the bid price of $0.50. We know this block is a new position given the open interest figure and we can assume that the block trader believes that XLE will remain above the $64.00 price level and/or is comfortable taking a long 2.5M share position in this fund at an effective purchase price of $63.50 in the event that it closes below $64.00 at expiration.

Separately:

  • December 16th 60.00 put: A 25,000 contract block was bought for $0.67 when the bid/ask spread was $0.63 x $0.68 (open interest is 17,950).
  • December 16th 50.00 put: A 25,000 contract block was simultaneously sold for $0.24 (open interest is 104,103).

It’s difficult to be certain but it appears that the block trader either rolled up a previously held long (bearish) put position from the 50.00 to the 60.00 strike price or established a new $10.00-wide bear put spread for a net debit of $0.43 (x 25K contracts x 100 multiplier, excluding commissions).

Volume Signals

Empire State Realty Trust Inc. (ESRT - $0.05 to $6.62): Option volume is running at over 150x the daily average on this real estate investment trust (REIT) which is primarily being driven by a 3,250 contract block that was bought on the December 16th 7.50 call for $0.25 when the bid/ask spread was $0.15 x $0.30 (open interest is 2,340). We know that 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.

The Aaron’s Company Inc. (AAN - $0.11 to $10.10): Option volume is running at ~36x the daily average on this omnichannel provider of lease-to-own and retail purchase solutions as option traders primarily target the October 21st 7.50 put. Volume on this contract is 2,313 versus open interest of 0, so we know that all of the volume represents fresh positioning (assuming no day trades). The bulk of the transactions on this contract consisted of various-sized blocks that were being bought around the same time at the ask price of $0.15 each, which suggests bearish intent.

Kronos Worldwide Inc. (KRO - $0.84 to $8.60): Option volume is running at ~30x the daily average on this titanium dioxide pigment (TiO2) producer as option traders primarily target the November 18th 7.50 put. Volume on this contract is 2,008 versus open interest of 50, so we know that the volume primarily represents opening activity. The bulk of the transactions on this contract consisted of various-sized blocks that were being bought around the same time at the ask price of $0.25 each, which suggests bearish intent.

Gauging Volatility

The Cboe Volatility Index (VIX + 0.92 to 29.47) has been in positive territory all day today (the intraday range is 28.56-30.01) as equity markets are lower across the board around the mid-day mark (DJI - 181, SPX - 18, COMPX - 26). VIX option volume has been above average today at 405,711 contracts, which puts the index at the #9 spot on the “Top Volume by Underlying” list. The volume put/call ratio is currently 0.32, with the highest volume contract being the November 16th 60.00 call (volume is 42,235 vs. open interest of 260,545).

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

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