Today's Options Market Update

U.S. stocks have turned mixed after receiving an early boost from favorable results from market heavyweights, highlighted by reports from Dow member Apple, Amazon and Facebook. However, Google's parent Alphabet's results are facing some heightened scrutiny and uncertainty regarding the size, scope and timing of an expected next wave of fiscal relief measures remains as wrangling on Capitol Hill continues. Moreover, Dow members Exxon Mobil and Chevron are lower in the wake of their earnings results. Treasury yields are little changed, while the U.S. dollar is pausing from a recent tumble. Gold is resuming a record rally and crude oil prices are dipping. In economic news, personal income and spending figures came in mixed, consumer sentiment was revised down by a larger amount than expected, but Chicago manufacturing activity unexpectedly jumped back into expansion territory. Asia finished mixed despite some upbeat economic data out of Japan and China, while Europe is diverging after another dose of downbeat GDP data in the region.   

At 11:03 a.m. ET, the Dow Jones Industrial Average is down 0.5% and the S&P 500 Index is dipping 0.1%, while the NASDAQ Composite is gaining 0.5%. WTI crude oil is decreasing $0.19 to $39.73 per barrel and Brent crude oil is declining $0.23 to $43.02 per barrel, and wholesale gasoline is off $0.03 at $1.16 per gallon. The Bloomberg gold spot price is rallying $41.95 to $1,943.97 per ounce, and the Dollar Index—a comparison of the U.S. dollar to six major world currencies—is dropping 0.9% to 93.54. Natural Gas prices have traded in a range of $1.81-1.86 and were last seen trading lower by $0.002 (or - 0.11%) to $1.827/MMBtu.

Source: Schwab Center for Financial Research

Today’s Bullish Activity

Multiple stocks are moving higher following upbeat earnings/guidance announcements:

  • Amazon.com Inc. (AMZN + $165.47 to $3,217.35): The e-commerce and cloud giant reported Q2 earnings of $10.30 per share ($8.68 beat) on revenue that rose 40.2% to $88.91B (above the $81.27B consensus estimate) with operating income rising 89.5% year-over-year to $5.84B (above prior guidance of $(1.5)-1.5B). Amazon Web Services (AWS) segment sales increased 29% year-over-year to $10.81B. Looking ahead, the company said that Q3 revenue is expected to come in a range of $87.00-93.00B (above the $86.36B consensus estimate) with operating income expected to come in a range of $2.0-5.0B (vs. the $2.90B consensus estimate). Calls are outnumbering puts roughly 3:2 with the July 31st 3200.00 call leading the way (volume is 9,255).
  • Apple Inc. (AAPL + $23.46 to $408.22): The iPhone maker reported fiscal Q3 earnings of $2.58 per share, excluding non-recurring items ($0.51 beat) on revenue that rose 10.9% year-over-year to $59.69B (above the $52.56B expected).iPhone revenue increased 1.5% to $26.4B (above the $22.0B expected), services revenue increased 14.8% to $13.2B (above the $13.0B expected), iPad revenue increased 22% to $7.08B, Mac revenue increased 31% to $6.6B and wearables revenue increased 16% to $6.6B (all year-over-year). Calls are outnumbering puts roughly 2:1 with the July 31st 410.00 call being the most actively traded contract (volume is 53,945).
  • Facebook Inc. (FB + $17.75 to $252.25): The social media giant reported Q2 earnings of $1.80 per share ($0.42 beat) on revenue that rose 10.7% year-over-year to $18.69B (above the $17.36B expected). Daily Active Users (DAUs) increased 12% to 1.79B while Monthly Active Users (MAUs) increased 12% to 2.70B (both year-over-year). In terms of guidance, the company said that it expects DAUs and MAUs to be flat or slightly down in most regions (quarter-over-quarter), total expenses to come in a range of $52-55B (narrowed slightly from prior guidance of $52-56B) and capital expenditures to be approximately $16B. Calls are outnumbering puts roughly 2:1 with the July 31st 250.00 call being the most actively traded contract (volume is 17,099).
  • Pinterest Inc. (PINS + $7.39 to $32.58): The social media platform reported a Q2 loss of $0.07 per share, excluding non-recurring items ($0.06 beat) on revenue that rose 4.2% year-over-year to $272.3M (above the $254.79M expected). The company said that it is not providing guidance at this time due to the uncertainty surrounding the COVID-19 pandemic. Calls are outnumbering puts better than 2:1 with the August 21st 40.00 call topping the most actives list (volume is 6,943).

 

New 52-week highs (126 new highs today): Activision Blizzard Inc. (ATVI + $0.75 to $82.45), Clorox Company (CLX + $3.58 to $234.84), Etsy Inc. (ETSY + $3.59 to $115.97), Qorvo Inc. (QRVO - $2.15 to $126.52)

Notable Call Activity

Purple Innovation (PRPL + $0.41 to $23.96): Calls are outpacing puts roughly 25:1 which is primarily being driven by activity on the August 21st 25.00 call (volume is 4,580 vs. open interest of 12,961) and 30.00 call (volume is 3,007 vs. open interest of 3,701).

Shares of Sorrento Therapeutics Inc. (SRNE + $0.77 to $9.32) are gapping up on news of a licensing agreement with Columbia University for the rights to a rapid, one-step diagnostic test that detects SARS-CoV-2 virus and some unusual call activity is coming up on the radar. Calls are outpacing puts roughly 8:1 as option traders primarily target two contracts on the August 21st expiration:

  • 10.00 call (volume is 11,155 vs. open interest of 16,867): Transactions on this contract mostly consisted of various-sized blocks that were being bought for between $1.90 and $2.05 each.
  • 15.00 call (volume is 9,584 vs. open interest of 11,083): Transactions on this contract mostly consisted of various-sized blocks that were being bought for between $0.70 and $0.75 each.

Today’s Bearish Activity   

Several stocks are moving lower this morning after reporting earnings:

  • Alphabet Inc. – Class A (GOOGL - $68.76 to $1,469.61): The Google reported Q2 earnings of $10.13 per share ($1.92 beat) on revenue that declined 1.7% year-over-year to $38.3B (above the $37.37B expected). Search revenue declined 10%, YouTube ad revenue grew 6% and Google Cloud revenue increased 43% year-over-year to $3B. Calls are outnumbering puts roughly 4:3 but the July 31st 1450.00 put is the most actively traded contract (volume is 3,022).
  • Atlassian Corp. (TEAM - $14.07 to $173.59): The enterprise cloud-software company reported Q2 earnings of $0.25 per share ($0.04 beat) on revenue that rose 28.5% year-over-year to $430.5M (above the $411.34M expected). Looking ahead, the company said that Q1 EPS is expected to be $0.26-0.27 on revenue of $430-445M versus the respective $0.29 and $438.88M consensus estimates. Calls and puts are trading roughly even with the August 21st 162.50 put seeing the most action from traders (volume is 1,204). 
  • Hill-Rom Holdings (HRC - $16.04 to $99.64): The medical technology reported fiscal Q3 earnings of $1.95 per share, excluding non-recurring items ($0.49 beat) on revenue that rose 5.6% year-over-year to $767.5M (above the $749.39M expected). In terms of guidance, the company said that it expects fiscal 2020 adjusted earnings to be at least $5.40 per diluted share. Puts are outnumbering calls better than 10:1 with the September 18th 95.00 put topping the most actives list (volume is 1,102).
  • XPO Logistics Inc. (XPO - $13.21 to $73.44): The provider of transportation and logistics solutions reported a Q2 loss of $0.63 per share, excluding non-recurring items ($0.14 beat) on revenue that fell 17.4% year-over-year to $3.5B (above the $3.37B expected). In terms of guidance, the company said that it expects to generate at least $350M of adjusted EBITDA in the third quarter. Calls are outnumbering puts roughly 5:2 with the September 18th 70.00 call garnering the most attention from traders (volume is 1,359).

 

New 52-week lows (5 new lows today):Advanced Emissions Solutions Inc. (ADES - $0.22 to $4.05), Canon Inc. (CAJ - $0.98 to $16.14), Farm Brothers Inc. (FARM - $0.24 to $4.84)

Notable Put Activity

Some unusual put activity (~9:1 over calls) is being seen in the SPDR S&P Regional Bank ETF (KRE - $1.09 to $36.85) which is primarily being driven by activity on two contracts on the September 18th expiration:

  • 37.00 put (open interest is 1,415): The bulk of the volume on this contract is being attributed to a 1,750 block that was bought for $2.32 when the bid/ask spread was $2.26 x $2.37.
  • 33.00 put (open interest is 1,680): The bulk of the volume on this contract is being attributed to a 1,750 block that was simultaneously sold for $0.92 when the bid/ask spread was $0.89 x $0.96.

We know these blocks are new positions given the respective open interest figures and it appears that a $4.00-wide bear put spread was established for a net debit of $1.40 (x 1,750 contracts x 100 multiplier, excluding commissions) which suggests that the block trader believes that KRE will close below the break-even price of $35.60 at expiration.

Volume Signals     

General Electric Co. (GE - $0.23 to $6.02): The most actively traded option contract in the market today is the GE 1/15/2021 10.00 call as volume is 93,947 versus open interest is 349,588. Over 85% of the volume on this contract is being attributed to an 80.89K block that was bought at the ask price of $0.12. It’s likely that this is a new (bullish) position based on the expiration date but we can’t be sure given the open interest figure.

Restaurant Brands Inc. (QSR - $1.42 to $55.93): Option volume is running at roughly 14x the daily average of 554 contracts which is primarily being driven by three large blocks that simultaneously traded on the August 21st expiration:

  • 60.00 call (open interest is 1,008): A 2,500 contract block was sold at the bid price of $0.60.
  • 55.00 put (open interest is 416): A 2,500 contract block traded for $1.55 when the bid/ask spread was $1.50 x $1.65.
  • 52.50 put (open interest is 495): A 2,500 contract block was sold at the bid price of $0.75.

We know these blocks are new positions based on the respective open interest figures and it appears that a (bearish) risk reversal put spread was established for a net debit of $0.20 (x 2,500 contracts x 100 multiplier, excluding commissions) which suggests that the block trader believes that QSR will close below the break-even price of $54.80 at expiration.  

Louisiana Pacific Co. (LPX - $0.43 to $31.46): Option volume is running at roughly 8x the daily average of 561 contracts which is primarily being driven by a couple of large blocks that simultaneously traded on the August 21st expiration:

  • 30.00 put (open interest is 622): A 2,000 contract block was bought for $1.32 when the bid/ask spread was $1.15 x $1.40.
  • 27.00 put (open interest is 53): A 2,000 contract block was sold for $0.42 when the bid/ask spread was $0.35 x $0.60.

We know these blocks are new positions based on the respective open interest figures and it appears that a $3.00-wide bear put spread was established for a net debit of $0.90 (x 2K contracts x 100 multiplier, excluding commissions) which suggests that the block trader believes that LPX will close below the break-even price of $29.10 at expiration.  

Gauging Volatility

The CBOE Volatility Index (VIX + 0.69 to 25.45) has been on both sides of the unchanged line today (intraday range is 23.55-26.41) as equity markets are mixed around the mid-day mark today (DJI - 181, SPX - 10, COMPX + 37). VIX option volume has been tepid today (currently missing from the top 10 most actives list) and the activity has been put-biased (the volume put/call ratio is currently 1.11). The most actively traded contract is the August 19th 23.00 put as volume is 6,141 versus open interest of 118,565.

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.

Next Steps

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

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