Today's Options Market Update

Lacking much fresh news after a long holiday weekend, Wall Street began Tuesday where it left off—tracking lower. Tech led the march downward, suggesting AI substitution anxiety that dogged trading much of this month hasn't dissipated. "Risk-off" trading persisted with the dollar and volatility up while bitcoin remained weak.

This short week does feature a possible tailwind as the 10-year Treasury note yield dropped to fresh two-month lows this morning at 4.03% after Friday's mild January Consumer Price Index (CPI). A flock of Federal Reserve policy makers speak in coming days, and tomorrow features minutes from the last Fed meeting, perhaps shedding light on the rate pause and the path forward. "Absent a sharp economic slowdown, which is not our base case, we don't see much room for yields to fall much further," said Collin Martin, head of fixed income research and strategy at the Schwab Center for Financial Research, or SCFR. "While inflation's moving in the right direction, it's still a bit elevated, and budget concerns and the rising trend in global bond yields should keep long-term Treasury yields elevated even as the Fed cuts rates later this year."

Wall Street ended mixed Friday, but the S&P 500 Index is down two straight weeks, and the Nasdaq-100® (NDX) has descended three straight. Industries from software to financial services to trucking to real estate suffered lately as investors wrestled with concerns that new AI tools could squeeze demand, though it's unclear how quickly. Speaking of AI, earnings arrive later today from Constellation Energy (CEG)—a beneficiary of the AI data center buildout—and Palo Alto Networks (PANW). Earnings season is tracking a healthy path so far, but there has been some deterioration and less concentration within the S&P 500 Index, alongside more improvement among smaller-cap companies. Walmart (WMT) reports later this week, and crude oil climbed on heightened tensions heading into nuclear talks between Iran and the U.S.

Source: Schwab Center for Financial Research

The 10-year U.S. Treasury yield (TNX) is lower by ~1 basis point to 4.045%.

The U.S. Dollar Index ($DXY) is higher by 0.56 to 97.47.

WTI Crude Oil (/CL) is lower by 0.86% to $62.35/barrel.

Gold prices have traded in a range of $4,854.20-5,074.40 and were last seen trading lower by ~3.11% to $4,889.50/oz.

Natural Gas prices for March futures have traded in a range of $2.968-3.171 today and were last seen trading lower by 5.40% to $3.068.

Bitcoin (BTC) is lower by ~2.86% over the last 24 hours to $66,946.41 today.

Shares of Southwest Airlines Inc. (LUV + $2.24 to $53.35) are flying higher this morning after UBS upgraded the airliner to “Buy” from “Neutral” and bumped their price target on the stock to $73.00 from $51.00. UBS analyst Atul Maheswari sees upside potential to EPS estimates from extra legroom (ELR) and assigned seating initiatives. Puts are slightly outnumbering calls with the March 20^th 50.00 put seeing the most action from traders (volume is 2,103).

Also trading to the upside this morning is Dollar Tree Inc. (DLTR + $2.05 to $128.11) after Rothschild & Co. Redburn to “Buy” from “Neutral” and hiked their price target on the stock to $165.00 from $75.00. Analysts at Rothschild view the company’s 12% earnings growth forecast as attractive given the stock’s current valuation. Calls are outnumbering puts ~2:1 with the March 20^th 140.00 call being the highest volume contract (volume is 75).

New 52-week highs (131 new highs today): AstraZeneca PLC (AZN + $2.91 to $208.46), FedEx Corp. FDX + $1.27 to $375.99), Novartis AG (NVS + $2.69 to $165.79)

Some unusual call activity (~9:1 calls over puts) is being seen in Jetblue Airways Corp. (JBLU + $0.25 to $6.16) as option traders primarily target the February 20^th 6.50 call. Volume on this contract is 12,445 versus open interest of 4,209, so we know that the volume primarily represents new positioning. The majority of the transactions consisted of various-sized blocks that were bought at various times for between $0.08-0.11 each, which suggests bullish intent.

Shares of Dollar General Corp. (DG - $4.65 to $149.19) are getting discounted this morning after Rothschild & Co. Redburn downgraded the retailer to “Sell” from “Neutral” while bumping their price target on the stock to $111.00 from $80.00. Analysts at Rothschild believe the stock warrants a lower multiple given the company’s lower sales outlook, lower margin profile and lower new store returns, relative to historical performance. Calls are outnumbering puts ~4:1 with the February 20^th 155.00 call being the highest volume contract (volume is 1,500).

Also trading to the downside today is ConocoPhillips Inc. (COP - $3.19 to $108.24) after Roth Capital downgraded the integrated oil producer to “Neutral” from “Buy” while maintaining their $112.00 price target on the stock. Analysts at Roth Child cited a high valuation relative to peers along with “toppy” oil prices. Calls are outnumbering puts ~3:2 with the March 20^th 110.00 call seeing the most action from traders (volume is 403).

New 52-week lows (91 new lows today): Booking Holdings Inc. (BKNG - $82.44 to $4,058.16), Domino’s Pizza Inc. (DPZ - $4.34 to $371.16), Intuit Inc. (INTU - $21.09 to $378.31)

Some unusual put activity (~20:1 puts over calls) is being seen in Emerson Electric Co. (EMR + $1.40 to $149.53) which is primarily driven by a 4,000 contract block that was bought on the September 18^th 130.00 put for $7.40 when the bid/ask spread was $5.90 x $8.30 (open interest is 59). We know that this block is a new position based on the open interest figure, and we can assume that the intent is bearish in nature since the trade took place above the midpoint of the bid/ask spread.

COMPASS Pathways PLC (CMPS + $2.64 to $8.45): Option volume is running at ~26x the daily average on this biotech firm which is primarily driven by a 2,240 contract block that was bought on the March 20^th 9.00 call at the ask price of $0.85 (open interest is 508). 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. Shares of CMPS are trading ~44% higher this morning after the company announced that its experimental psilocybin drug (COMP360) for the treatment of depression achieved the primary endpoint in a Phase 3 trial.

Huntsman Corp. (HUN - $0.67 to $12.54): Option volume is running at ~7x the daily average on this chemical company which is primarily driven by a 11,940 contract block that was bought on the March 20^th 11.00 put at the ask price of $0.50 (open interest is 722). We know that this block is a new position based on the open interest figure, and we can assume that the intent is bearish in nature since the trade took place at the ask price

BHP Group Ltd. (BHP - $0.02 to $73.36): Option volume is running at ~3x the daily average on this mining company which is primarily driven by a 2,500 contract block that was bought on the March 20^th 65.00 put for $0.99 when the bid/ask spread was $0.90 x $1.00 (open interest is 541). We know that this block is a new position based on the open interest figure, and we can assume that the intent is bearish in nature since the trade took place above the midpoint of the bid/ask spread.

The Cboe Volatility Index (VIX - 0.35 to 20.85) has been on both sides of the unchanged line today (the intraday range is 20.49-22.96), as equity markets are mixed around the midday mark (DJI + 42, SPX + 1, $COMP - 11). VIX option volume is above average today at 1,062,413 contracts, and calls are outnumbering puts nearly 4:1 so far today.