• Nathan Peterson

Today's Options Market Update


U.S. stocks are extending a recent bounce off of March 23rd lows in the final day of a holiday-shortened week, with the Federal Reserve delivering another monetary policy bazooka blast of $2.3 trillion. The Fed's actions are aimed at providing further relief and stability to the markets in the wake of another spike in jobless claims that have breached 16 million in the past three weeks. Asia finished mostly higher and Europe is gaining ground with the global markets also continuing to find support from early signs of a flattening of the COVID-19 curve. Treasury yields are mostly lower as bond prices rise on the short-to-mid ends of the curve. The U.S. dollar is falling and gold prices are rising, while crude oil prices are gaining ground as focus remains on today's OPEC+ meeting and whether Russia and Saudi Arabia will end their price war. Dow member Walt Disney announced a milestone for its Disney+ streaming service, while Costco Wholesale and Starbucks provided some detail regarding the impact of the COVID-19 outbreak on their results.

At 10:47 a.m. ET, the Dow Jones Industrial Average and the S&P 500 Index are gaining 2.1%, while the NASDAQ Composite is increasing 0.9%. WTI crude oil is advancing $1.94 to $27.03 per barrel, Brent crude oil is rising $2.88 to $35.72 per barrel, and wholesale gasoline is up $0.07 at $0.75 per gallon. The Bloomberg gold spot price is rallying $30.60 to $1,676.73 per ounce, and the Dollar Index—a comparison of the U.S. dollar to six major world currencies—is falling 0.5% at 99.61. Natural Gas prices have traded in a range of $1.74-1.83 and were last seen trading lower by $0.003 (or - 0.17%) to $1.78/MMBtu.

Source: Schwab Center for Financial Research

Today’s Bullish Activity

Shares of Dow-component Walt Disney Co. (DIS + $6.31 to $107.38) are gapping up following news that the company’s Disney+ streaming service has surpassed 50M paid users globally. Last week the company launched the service in India and said that approximately 8M paid subscribers had already signed up. Calls are slightly outnumbering puts with the April 9th 107.00 call topping the most actives list (volume is 5,129).

Also trading to the upside is Six Flags Entertainment Corp. (SIX + $2.47 to $16.76) after the world’s largest theme park operator said that it expects Q1 revenue to drop $25-30M year-over-year to $98-103M (vs. the $102.74M consensus estimate). The company also said that it is deferring or eliminating at least $40-50M of discretionary capital projects planned for 2020, and that it will suspend the payment of dividends and repurchase of common stock until the earlier of December 31st 2021, or such time as the company terminates the incremental $131M of the new revolving credit facility commitments. Puts are outnumbering calls better than 2:1 with the April 17th 12.50 put being the most actively traded contract (volume is 1,356).

Lastly, shares of Minerals Tech Inc. (MTX + $2.64 to $38.34) are higher after the maker of mineral, mineral-based synthetic mineral products said that it expects Q1 EPS to come in above the company’s prior forecast of $0.90-0.95 per share (also above the $0.87 consensus estimate). Looking ahead, the company said that Q2 results are expected to be negatively impacted due to the COVID-19 pandemic which has slowed business activity in several key end-markets. Shares of MTX are trading near a one-month high this morning. Option volume is relatively light with the May 15th 40.00 call being the most actively traded contract (volume is 60).

New 52-week highs (14 new highs today): Bilibili Inc. (BILI + $1.68 to $27.88), Catasys Inc. (CATS + $1.62 to $22.10), Equinix Inc. (EQIX + $20.74 to $685.00), Qualys Inc. (QLYS + $3.70 to $99.20)

Notable Call Activity

Some unusual call activity (~8:1 over puts) is being seen in Murphy Oil Corp. (MUR + $0.97 to $8.30) which is primarily being driven by activity on the May 15th 12.50 call. Volume on this contract is 4,342 versus open interest of 52, so it’s likely that this is all new positioning. The bulk of the volume on this contract is coming from a 2,249 block that was bought for $0.67 and (around the same time) multiple mid-sized blocks (395, 390, 304, 200) that were bought for $0.66 when the bid/ask spread was $0.35 x $0.70, which suggests bullish intent.

SPDR Financial Select Sector ETF (XLF + $1.18 to $23.37): A 26,000 block traded on the April 17th 24.00 call for $0.43 when the bid/ask spread was $0.42 x $0.44 (open interest is 20,423). We know this block is a new position given the open interest figure but we don’t know whether this block was bought or sold since the trade took place directly in the middle of the bid/ask spread.

Today’s Bearish Activity

Shares of Costco Wholesale Corp. (COST - $6.06 to $299.91) are moving lower after the membership warehouse operator reported a 9.6% jump in March comparable same-store sales. The company said that U.S. comparable sales rose 10.7% for the five-week period ending April 5th, while e-commerce sales jumped 48.3% year-over-year. Deutsche Bank said that the comps were below their expectations and lowered their price target on the stock to $295.00 from $300.00. Calls are outnumbering puts roughly 2:1 with the April 9th 310.00 call being the most actively traded contract (volume is 3,002).

Also trading to the downside is Arista Networks Inc. (ANET - $6.23 to $208.36) after Piper Sandler downgraded the cloud infrastructure supplier to “Neutral” from “Overweight” while maintaining their $224.00 price target. Analysts at Piper Sandler said that enterprises are cutting their datacenter spending with new vendors like Arista and noted that trends outside of the hyperscale market remain challenging. Puts are outnumbering calls nearly 2:1 with the April 9th 215.00 put garnering the most attention from traders (volume is 70).

New 52-week lows (2 new lows today): A.H. Belo Corp. (AHC - $0.01 to $1.33), Blonder Tongue Laboratories Inc. (BDR + $0.065 to $0.5521)

Notable Put Activity

iShares US Real Estate ETF (IYR + $4.91 to $79.63): Puts are outnumbering calls roughly 4:1 which is primarily being driven by a couple of large blocks that simultaneously traded on the April 17th expiration:

  • 72.00 put (open interest is 2,870): A 6,500 block was bought for $0.42 when the bid/ask spread was $0.33 x $0.44.

  • 66.00 put (open interest is 3,873): A 6,500 block was sold for $0.07 when the bid/ask spread was $0.06 x $0.14.

We know these blocks are new positions given the respective open interest figures and it appears that a $6.00-wide bear put spread was established for a net debit of $0.35 (x 6,500 contracts x 100 multiplier, excluding commissions) which suggests that the block trader believes that IYR will close below the break-even price of $71.65 at expiration.

SPDR S&P Biotech ETF (XBI + $1.35 to $83.24): Puts are outpacing calls roughly 9:1 which is mostly being driven by an 8,943 block that was bought on the May 15th 72.00 put at the ask price of $1.28 (open interest is 2,213). We know this block is a new position given the open interest figure and we can assume the intent is bearish in nature since the trade took place at the ask price.

Volume Signals

Tallgrass Energy L.P. (TGE + $0.11 to $18.22): Option volume is running at roughly 25x the daily average of 604 contracts which is primarily being driven by a couple of large blocks that simultaneously traded out on the May 15th expiration:

  • 16.00 put (open interest is 10): A 7,500 block was bought at the ask price of $2.80.

  • 11.00 put (open interest is 0): A 7,500 block was sold for $0.80 when the bid/ask spread was $0.00 x $4.90.

We know these blocks are new positions given the respective open interest figures and it appears that a $5.00-wide bear put spread was established for a net debit of $2.00 (x 7,500 contracts x 100 multiplier, excluding commissions) which suggests that the block trader believes that TGE will close below the break-even price of $14.00 at expiration.

Liberty Global Inc. (LBTYK + $0.07 to $17.37): Option volume is running at over 3x the daily average of 10,124 contracts which is primarily being driven by activity on the October 16th 15.00 put. Volume on this contract is 37,967 versus open interest of 10, so it’s likely that this is all new positioning here. The bulk of the volume on this contract is being attributed to three large blocks (17,130, 8,565 & 8,565) that were bought at the ask price of $1.30. We know these blocks are new positions based on the open interest figure and we can assume the intent is bearish in nature since the blocks were bought at the ask price.

Viacom CBS Inc. (VIAC + $1.04 to $16.84): Some unusual block activity was being seen out on the September 18th 13.00 put earlier this morning. Three large blocks (10,240, 5,209, & 4,676) were bought on this contract for $1.87 when the bid/ask spread was $1.39 x $1.89, and since the open interest is only 1,156, we know these blocks are new positions and can assume the intent is bearish in nature.

Gauging Volatility

The CBOE Volatility Index (VIX - 0.70 to 42.65) has been on both sides of the unchanged line today (intraday range is 42.08-45.73) as equity markets are higher across the board around the mid-day mark today (DJI + 719, SPX + 73, COMPX + 166). 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 1.22). The most actively traded contract is the June 17th 13.00 put as volume is 15,000 versus open interest of 75,536.

Important Disclosures

Schwab Center for Financial Research ("SCFR") is a division of Charles Schwab & Co., Inc. The information contained herein is obtained from third-party sources and believed to be reliable, but its accuracy or completeness is not guaranteed. This report is for informational purposes only and is not a solicitation, or a recommendation that any particular investor should purchase or sell any particular security. The investment information mentioned here may not be suitable for everyone. Each investor needs to review an investment strategy for his or her own particular situation before making any investment decision. All expressions of opinions are subject to change without notice in reaction to shifting market conditions.

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