Market Commentary | January 20, 2022

Today's Options Market Update

Stocks attempt to stabilize; data, earnings and yields in focus.

U.S. stocks are higher in mid-day action, after an uninspiring performance since the beginning of the shortened week. The recent volatility has been sparked by increased expectations that the Fed is set to get more aggressive amid persistent inflationary pressures. Initial jobless claims increased more than expected, and continuing claims were also higher than the estimate. Existing home sales declined more than expected in December, but the annual sales level was the highest since 2006. In equity news, Dow member Travelers Companies is advancing after the company's fourth quarter earnings topped estimates, Union Pacific's quarterly earnings were higher than expected after reporting double-digit quarterly revenue growth, and United Airlines and American Airlines posted quarterly losses that were narrower than what analysts had predicted. Treasuries are lower, lifting yields, and the U.S. dollar is little changed. Gold is higher and crude oil prices are trading to the upside. Asia finished mixed after China lowered its loan prime rates, and Europe is mostly higher.    

At 10:55 a.m. ET, the Dow Jones Industrial Average is up 1.2%, the S&P 500 is increasing 1.4%, and the Nasdaq Composite is gaining 2.0%. WTI crude oil is rising $0.54 to $86.34 per barrel, Brent crude oil is gaining $0.33 at $88.77 per barrel. The gold spot price is $2.90 higher to $1,845.90 per ounce, and the Dollar Index—a comparison of the U.S. dollar to six major world currencies—is little changed at 95.47. Natural Gas prices have traded in a range of $3.815-4.037 and were last seen trading lower by $0.199 (or -4.94%) to $3.832/MMBtu.

Source: Schwab Center for Financial Research

Today’s Bullish Activity

Multiple names are moving higher following upbeat earnings announcements:

  • Alcoa Corp. (AA + $1.12 to $60.75): The largest U.S. aluminum producer reported Q4 earnings of $2.50 per share ($0.51 beat) on revenue that rose 38.0% year-over-year to $3.30B (below the $3.35B expected). On a quarter-over-quarter basis, the average realized third-party price of alumina increased 30% and the average realized third-party price of aluminum increased 8%. In terms of guidance, the company said that Q1 adjusted EBITDA and net income levels are expected to be similar to Q4 based on current pricing. Calls are outnumbering puts nearly 4:1 with the January 21st 55.00 call being the most actively traded contract (volume is 6,833).
  • The Travelers Companies Inc. (TRV + $7.51 to $167.58): The property and casualty insurer reported Q4 earnings of $5.20 per share ($1.34 beat) on revenue that rose 7.2% year-over-year to $9.01B (above the ~$8.0B expected). Calls are outpacing puts roughly 3:1 with the January 21st 165.00 call being the most actively traded contract (volume is 1,108).
  • Union Pacific Corp. (UNP + $4.97 to $244.46): The railroad operator reported Q4 earnings of $2.66 per share ($0.04 beat) on revenue that increased 11.5% year-over-year to $5.73B (above the $5.61B expected). The company’s operating ratio improved to 57.4% from 61.0% a year ago. Calls are outnumbering puts roughly 3:2 with the January 21st 245.00 call topping the most actives list (volume is 474).

 

New 52-week highs (15 new highs today): BHP Billiton PLC (BBL + $0.43 to $68.42), CME Group Inc. (CME + $2.49 to $232.11), Pepsico Inc. (PEP + $0.10 to $175.31)

Notable Call Activity

Some unusual call activity (~100:1 over puts) is being seen in Mr. Cooper Group Inc. (COOP - $0.12 to $44.09) as option traders primarily target the April 14th 45.00 call. Volume on this contract is 6,048 (vs. open interest of 9,484), which nearly entirely consisted of three large blocks (4,800, 900 & 300) that were bought around the same time at the ask price of $2.35. However, we can’t be sure that these blocks are new (bullish) positions given the open interest figure.    

Blue Apron Holdings Inc. (APRN + $0.67 to $8.03): Calls are outpacing puts ~14:1 which is primarily being driven by activity on the January 21st 9.00 call. Volume on this contract is 12,296 versus open interest of 1,474, so we know that this primarily represents new positioning. The majority of the transactions on this contract consisted of various-sized blocks that were being bought for between $0.25 and $0.50 each, which suggests bullish intent.

Today’s Bearish Activity    

Several stocks are trading to the downside following quarterly earnings announcements/guidance:

  • Enviva Inc. (EVA - $1.23 to $73.75): The utility-grade wood pellet supplier said that it expects to report a fiscal-year 2021 adjusted net loss of $19-24M versus adjusted net income of $46M in FY20. Concurrent with the guidance, the company announced a $300M secondary offering (4.3M shares of stock at $70.00 per share). Option volume is relatively light with the January 21st 60.00 call being the most actively traded contract (volume is 25).
  • Regions Financial Co. (RF - $0.86 to $22.79): The financial services provider reported Q4 earnings of $0.43 per diluted share, excluding non-recurring items ($0.05 miss) on revenue that decreased 3.5% year-over-year to $1.63B (in-line with expectations). Shares of RF briefly traded below the 100-day SMA (currently $22.42) earlier the session but moved back above this indicator at the time of this writing. Puts are outnumbering calls ~3:2 with the January 21tt 24.00 put topping the most actives list (volume is 2,707).
  • United Airlines Holding Inc. (UAL - $4.51 to $57.68): The airliner reported a Q4 loss of $1.60 per share, excluding non-recurring items ($0.49 beat) on revenue that rose 140.1% year-over-year to $8.19B (above the $7.96B expected) as Q4 capacity was down 23% versus Q4 2019. Looking ahead, the company said that Q1 capacity is expected to be down around 16-18% and Q1 operating revenue is expected to be down 20-25% compared to Q1 2019. Calls are outnumbering puts ~2:1 with the January 21st 45.00 call seeing the most action from traders (volume is 5,885).

 

New 52-week lows (139 new lows today): Big Lots Inc. (BIG - $0.28 to $40.57), Modivcare Inc. (MODV - $1.04 to $111.98), Novavax Inc. (NVAX + $2.08 to $94.41)

Notable Put Activity

Tegna Inc. (TGNA + $0.13 to $20.32): Puts are outpacing calls better than 4:1 on this media company which is primarily being driven by a couple of fairly large blocks that were seen simultaneously trading on the February 18th expiration earlier this morning:

  • 18.00 put (open interest is 2,503): A 5,000 contract block was bought at the ask price of $0.60. 
  • 16.00 put (open interest is 2,500): A 5,000 contract block was sold for $0.20. 

We know these blocks are new positions based on the respective open interest figures and it appears that a $2.00-wude bear put spread was established for a net debit of $0.40 (X 5,000 contracts x 100 multiplier, excluding commissions), which suggests that the block trader believes that TGNA will close below the break-even price of $17.60 at expiration.

Some unusual put activity (~5:1 over calls) is being seen in the iShares IBOXX Investment Grade Corporate Bond ETF (LQD + $0.12 to $128.25) which is primarily being driven by a 42,760 contract block that was bought on the February 18th 126.00 put at the ask price of $0.59 (open interest is 44,436). However, we can’t be sure that this is a new (bearish) position given the open interest figure.   

Volume Signals

Barclays PLC (BCS - $0.08 to $11.35): Option volume is running at 13x the daily average on this U.K. bank which is primarily being driven by three large blocks that simultaneously traded on the March 18th expiration earlier this morning:

  • 12.00 call (open interest is 3,230): A 6,017 contract block traded for $0.25, directly in the middle of the $0.20 x $0.30 bid/ask spread. 
  • 12.00 put (open interest is 1,019): A 6,017 contract block was sold for $1.00 when the bid/ask spread was $0.95 x $1.15. 
  • 11.00 put (open interest is 1,413): A 6,017 contract block was bought at the ask price of $0.55. 

We know these blocks are new positions based on the respective open interest figures and while it’s difficult to be certain, it appears that a synthetic stock position (i.e. long call, short put with the same strike price and expiration date), plus a protective put at the 11.00 strike price was established for a net credit of $0.20 (X 6,017 contracts x 100 multiplier, excluding commissions), which would suggest that the block trader is bullish on BCS.

Adaptive Biotechnologies Inc. (ADPT + $0.71 to $18.23): Option volume is running at ~12x the daily average on this clinical-stage biotechnology company which is primarily being driven by a couple of fairly large blocks that simultaneously traded on the February 18th expiration earlier this morning:

  • 17.50 call (open interest is 30): A 750 contract block was sold for $2.20 when the bid/ask spread was $1.15 x $4.80. 
  • 17.50 put (open interest is 15): A 750 contract block was sold at the bid price of $1.00. 

We know these blocks are new positions based on the respective open interest figures and it appears that a short straddle was established for a net credit of $3.20 (X 750 contracts x 100 multiplier, excluding commissions), which suggests that the block trader believes that ADPT will close in-between the upper break-even price of $20.70 and the lower break-even price of $14.30 at expiration.

HealthEquity Inc. (HQY + $1.33 to $49.80): Option volume is running at ~9x the daily average on this independent HSA (health savings account) custodian which is primarily being driven by a couple of fairly large blocks that simultaneously traded on the February 18th expiration earlier this morning:

  • 50.00 call (open interest is 49): A 1,600 contract block was bought for $2.90 when the bid/ask spread was $2.50 x $3.20. 
  • 45.00 put (open interest is 489): A 1,600 contract block was sold for $1.00 when the bid/ask spread was $0.90 x $1.50. 

We know these blocks are new positions based on the respective open interest figures and it appears that a (bullish) risk reversal was established for a net debit of $1.90 (X 1,600 contracts x 100 multiplier, excluding commissions), which suggests that the block trader believes that HQY will close above the break-even price of $51.90 at expiration.

General Motors Co. (GM + $0.02 to $56.26): A couple of large blocks were seen simultaneously trading out on the April 14th expiration earlier this morning:

  • 60.00 call (open interest is 1,217): A 14,000 contract block was bought at the ask price of $3.05. 
  • 70.00 call (open interest is 1,091): A 14,000 contract block was sold for $0.85 when the bid/ask spread was $0.83 x $0.88. 

We know these blocks are new positions based on the respective open interest figures and it appears that a $10.00-wide bull call spread was established for a net debit of $2.20 (X 14,000 contracts x 100 multiplier, excluding commissions), which suggests that the block trader believes that GM will close above the break-even price of $62.20 at expiration.

Gauging Volatility

The CBOE Volatility Index (VIX - 1.66 to 22.19) has been in negative territory all day today (the intraday range is 21.68-23.74) as equity markets are higher across the board around the mid-day mark (DJI + 235, SPX + 37, COMPX + 164). VIX option volume has been tepid today as the index is currently missing from the top 10 most actives list, and the activity has been call-biased (the volume put/call ratio is currently 0.56). The most actively traded contract is the February 16th 40.00 call as volume is 14,209 versus open interest of 53,204.

Shares of Wayfair Inc. (W - $1.67 to $154.35) are down over 18% so far this year and average implied volatility has moved from ~53% to the current level of ~70% over that timeframe. 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