Today's Options Market Update
U.S. equities are higher midday, but some caution ahead of the release of the Fed's Beige book in afternoon action appears to be keeping gains in check. Concerns about supply-chain challenges and the accompanying inflation pressures persist, which have fostered expectations that the Fed and other global central banks will soon begin to rein in extraordinary monetary policy measures. Q3 earnings results continue to be in focus, as Netflix posted better-than-expected bottom-line figures and bested the Street's forecasts on subscriber growth, while United Airlines reported a smaller loss than what analysts were expecting, but revenues and passenger capacity remained below pre-pandemic levels. Treasuries are mixed after the yield curve has steepened somewhat lately, and the U.S. dollar is ticking lower, while gold is gaining ground, and crude oil prices are adding to a recent run. In economic news, mortgage applications dropped last week amid an increase in interest rates. Asia finished mixed, with weakness in Chinese markets coming up against a rally in Hong Kong stocks, while Europe is mixed in lackluster trading.
At 10:50 a.m. ET, the Dow Jones Industrial Average and the S&P 500 Index are up 0.4%, and Nasdaq Composite is rising 0.2%. WTI crude oil is increasing $0.37 to $82.84 per barrel, and Brent crude oil is $0.08 higher at $85.15 per barrel. The gold spot price is advancing $11.80 to $1,782.40 per ounce, and the Dollar Index—a comparison of the U.S. dollar to six major world currencies—is declining 0.1% at 93.67. Natural Gas prices have traded in a range of $4.912-5.137 and were last seen trading lower by $0.006 (or -0.12%) to $5.082/MMBtu.
Source: Schwab Center for Financial Research
Today’s Bullish Activity
Multiple names are moving higher following upbeat earnings announcements:
- Abbott Laboratories Inc. (ABT + $4.95 to $124.29): The medical device maker reported Q3 earnings of $1.40 per share, excluding non-recurring items ($0.46 beat) on revenue that rose 23.4% year-over-year to $10.93B (above the $9.56B expected). The company issued upside guidance as fiscal-year 2021 EPS is expected to come in a range of $5.00-5.10, excluding non-recurring items, versus the $4.45 consensus estimate. Today’s ~3.8% jump puts ABT above the 50-day Simple Moving Average (currently $123.11). Calls are outnumbering puts roughly 2:1 with the January 2022 130.00 call being the most actively traded contract (volume is 3,087).
- Biogen Inc. (BIIB + $4.69 to $272.82): The drug maker reported Q3 earnings of $4.77 per share, excluding non-recurring items ($0.68 beat) on revenue that fell 17.7% year-over-year to $2.78B (above the $2.67B expected). Looking ahead, the company raised its fiscal-year 2021 EPS forecast to a range of $18.85-19.35 (from $17.50-19.00) and 2021 revenue forecast to a range of $10.8-10.9B (from $10.65-10.85B). Calls are outnumbering puts nearly 2:1 with the October 22nd 275.00 call leading the way (volume is 419).
- Canadian National Railway Co. (CNI + $7.48 to $131.77): The largest Canadian railroad reported Q3 earnings of CAD 1.52 per share, excluding non-recurring items (CAD 0.10 beat) on revenue that increased 5.3% year-over-year to CAD 3.59B (above the CAD 3.51B expected). The company’s operating ratio increased 2.8 points to 62.7% while the adjusted operating ratio improved 0.9 points to 59.0%. The company issued upside guidance as adjusted EPS growth is expected to be 10% year-over-year, which translates to CAD 5.84 (vs. the CAD 5.72 consensus estimate). Shares of CNI are trading at all-time highs following the results. Calls are outnumbering puts roughly 6:1 with the November 19th 120.00 call topping the most actives list (volume is 1,158).
New 52-week highs (170 new highs today): Advanced Auto Parts Inc. (AAP + $3.20 to $227.34), Avis Budget Group Inc. (CAR + $4.72 to $163.62), Lowe’s Companies (LOW + $1.00 to $223.91)
Notable Call Activity
Some unusual call activity (~12:1 over puts) is being seen in United Parcel Services Inc. (UPS + $0.58 to $194.37) as option traders primarily target the October 22nd 197.50 call. Volume on this contract is 15,441 versus open interest of 773, so we know that this primarily represents new positioning. The transactions mostly consisted of various-sized blocks that were being bought at various times for between $0.56 and $0.82 each, which suggests bullish intent. Note: UPS is slated to report Q3 earnings on October 26th before the market open, so this positioning does not capture the potential impact of that event.
Farfetch Ltd. (FTCH - $0.11 to $39.95): A 10,000 contract block was bought on the November 19th 45.00 call at the ask price of $1.08 (open interest is 4,668). 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 at the ask price. Note: FTCH is scheduled to report Q3 earnings on November 18th after the close, so this positioning captures the potential impact of that event.
Today’s Bearish Activity
Several stocks are trading to the downside following quarterly earnings announcements/guidance:
- ASML Holding N.V. (ASML - $32.17 to $768.79): The semiconductor equipment maker reported Q3 earnings of €4.27 per share (€0.30 beat) on revenue that rose 32.4% year-over-year to €5.24B (above the €5.30B expected). The company issued downside guidance as Q4 €4.9-5.2B versus the €5.23B consensus estimate with gross margin expected to come in a range of 51.0-52.0%. Calls and puts are trading roughly even with the October 22nd 780.00 call being the most actively traded contract (volume is 497).
- Brinker International Inc. (EAT - $2.21 to $46.74): The owner and operator of casual dining restaurants provided preliminary Q1 guidance yesterday after the bell: adjusted earnings are expected to be $0.34 per share, excluding non-recurring items ($0.71 beat) on revenue that is expected to increase 17.8% year-over-year to $859.6M (below the $876.2M expected). The company cited industry-wide labor and commodity challenges for the weaker-than-expected guidance. Puts are outnumbering calls better than 3:1 with the December 17th 35.00 put being the most actively traded contract (volume is 4,858).
- Netflix Inc. (NFLX - $7.28 to $631.72): The streaming giant reported Q3 earnings of $3.19 per share ($0.63 beat) on revenue that rose 16.0% year-over-year to $7.48B (in-line with estimates) as global streaming net additions came in at 4.38M (above the 3.7M expected). Looking ahead, the company said that Q4 EPS is expected to be $0.80 (below the $1.10 consensus estimate) on revenue that is expected to be $7.71B (above the $7.68B expected) with global streaming paid net additions expected to be 8.5M (above the 8.33M expected). Calls are outnumbering puts roughly 3:2 with the October 22nd 640.00 call leading the way (volume is 14,631).
New 52-week lows (25 new lows today): Duck Creek Technologies Inc. (DCT - $0.44 to $32.84), Healthcare Services Group Inc. (HCSG - $2.96 to $20.31), W-D 40 Company (WDFC - $15.25 to $214.03)
Notable Put Activity
Some unusual put activity (better than 13:1 over calls) is being seen in the SPDR S&P Regional Banking ETF (KRE + $1.47 to $72.12) which is primarily being driven by a 33,100 contract block that was bought on the December 17th 55.00 put at the ask price of $0.16 (open interest is 43,764). However, we can’t be sure that this is a new (bearish) position given the open interest figure.
Radius Health Inc. (RDUS + $3.68 to $19.14): Option volume is running at roughly 60x the daily average of 301 contracts which is primarily being driven by activity on two contracts on the November 19th expiration:
- 22.50 call (volume is 3,932 vs. open interest of 7) – The activity on this contract mostly consisted of various-sized blocks that were being bought at various times for between $1.40-2.50 each, which suggests bullish intent.
- 25.00 call (volume is 3,482 vs. open interest of 0) – The majority of the activity on this contract consisted of various-sized blocks that were being bought at various times for between $1.20 and $1.75 each, which suggests bullish intent.
Note: Shares of RDUS are trading ~23% higher this morning after the company said that its breast cancer treatment (Elacestrant), being developed with partner Menarini Group, met both primary endpoints in a Phase 3 trial for patients with advanced breast cancer. RDUS traded as high as $23.00 earlier in the session but has subsequently pulled back (at least at the time of this writing).
Brighthouse Financial Inc. (BHF + $1.58 to $52.24): Option volume is running at roughly 40x the daily average of 263 contracts which is primarily being driven by a couple of large blocks that were seen simultaneously trading on the February 2022 earlier this morning:
- 60.00 call (open interest is 279) – A 5,000 contract block was bought for $1.65 when the bid/ask spread was $0.80 x $1.95.
- 65.00 call (open interest is 5,024) – A 5,000 contract block was sold for $0.80 when the bid/ask spread was $0.75 x $0.95.
We know the block trade on the 60.00 call is a new position based on the open interest figure and it appears that either a) a previously held long 5K call position was rolled down from the 65.00 to the 60.00 strike price or b) a new bull call spread was established for a net debit of $0.85 (x 5,000 contracts x 100 multiplier, excluding commissions), which would suggest that the block trader believes that BHF will close above the break-even price of $60.85 at expiration.
Texas Roadhouse Inc. (TXRH + $0.57 to $90.39): Option volume is running at roughly 16x the daily average of 753 contracts which is primarily being driven by a 5,378 contract block that was bought on the November 19th 90.00 call for $3.10 when the bid/ask spread was $2.40 x $3.20 (open interest is 117). We know 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 above the midpoint of the bid/ask spread. Note: TXRH is slated to report Q3 earnings on October 28th after the bell so this positioning captures the potential impact of that event.
The CBOE Volatility Index (VIX - 0.38 to 15.32) is dropping down to the lowest levels since August 13th (the intraday range is 15.29-15.86) as equity markets are higher across the board around the mid-day mark today (DJI + 198, SPX + 18, COMPX + 8). VIX option volume has been tepid as the index is currently missing from the top 10 most actives list. The most actively traded contract is the November 17th 15.00 put as volume is 53,763 versus open interest of 227,647.
Shares of Pinterest Inc. (PINS + $7.08 to $62.66) are seeing a mid-day pop following a Bloomberg News report that PayPal (PYPL - $16.19 to $255.51) is looking to buy the company for around $70.00 (according to the report). PINS has traded in a range of $55.48-66.00 today and average implied volatility is up to 61% from yesterday’s 57% 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.