Trading | April 22, 2021

Today's Options Market Update

Stocks Dip Again Amid Recent Volatility.

U.S. stocks are slightly lower, failing to build on yesterday’s positive session that snapped a two-day losing streak. The markets are continuing to weigh the implications of rising COVID-19 cases in pockets of the world against optimism of strong 2021 economic growth. Sector performance is mixed, with the Energy sector coming under pressure as crude prices tick lower, while Communication Services and Real Estate are leading to the upside. The economic calendar for the week is coming alive, as existing home sales declined more than expected, leading indicators topped expectations, and jobless claims decelerated for a second-straight week. Earnings season continues to roll on and help preserve the optimism for the year, with the Street's digesting results from AT&T, Chipotle Mexican Grill, Southwest Airlines and Whirlpool. Treasuries are little changed, while the U.S. dollar moves higher after a recent soft patch, and Gold is lower. Asia finished mostly higher and Europe is rising on the heels of earnings results and the unchanged monetary policy stance from the European Central Bank.

As of 10:45 a.m. ET, the Dow Jones Industrial Average is down 0.3%, the S&P 500 Index is falling 0.1%, and the Nasdaq Composite is gaining 0.2%. WTI crude oil is declining $0.16 to $61.19 per barrel and Brent crude oil is down $0.36 to $64.96 per barrel. The Bloomberg gold spot price is trading $7.22 lower at $1,786.57 per ounce, and the Dollar Index—a comparison of the U.S. dollar to six major world currencies—is 0.2% higher at 91.34. Natural Gas prices have traded in a range of $2.657-2.768 and were last seen trading higher by $0.065 (or +2.34%) to $2.757/MMBtu.

Source: Schwab Center for Financial Research

Today’s Bullish Activity

Multiple names are moving higher following upbeat earnings announcements:

  • AT&T Inc. (T $31, +3.8%): The telecom giant announced Q1 earnings-per-share (EPS) of $0.86, topping the $0.78 estimate, as revenues rose 2.7% year-over-year (y/o/y) to $43.9B, exceeding the forecast of $42.7B. The company said it saw solid wireless, fiber and HBO Max subscriber gains with continuing strong cash flows. T is trading at a 4-month high this morning and calls are outpacing puts nearly 10:1. The April 23rd 21 calls are getting the most attention from traders (volume is 86,121).
  • Southwest Airlines Co. (LUV $62, +1.4%): The airline posted an adjusted Q1 loss of $1.72 per share, compared to the expected shortfall of $1.85 per share. Revenues fell 51.5% y/o/y to $2.1B, roughly in line with expectations. The company said, "While the pandemic is not over, we believe the worst is behind us, in terms of the severity of the negative impact on travel demand. Vaccinations are on the rise, and COVID-19 hospitalizations in the United States are down significantly from their peak in January 2021. As a result, we are experiencing steady weekly improvements in domestic leisure bookings, which began in mid-February 2021." While option volume is relatively light, calls are outpacing puts about 2:1 with the April 23rd 63.50 calls seeing the most action (volume is 493).
  • Whirlpool Corporation (WHR $243, +3.8%): The appliance maker reported Q1 ongoing EPS of $7.20, north of the expected $5.40, as revenues rose 23.9% y/o/y to $5.4B, above the expected $4.9B. WHR raised its full-year EPS and revenue guidance, due to sustained strong consumer demand and its recent cost-based pricing actions, while noting that its Q1 results demonstrate its agility and resilience in dealing with component shortages and inflationary pressure. WHR hit at least a 15-year high earlier in the session and calls are outpacing puts nearly 3:1. The most active contract is the April 23rd 245 call (volume is 1,344). 

New 52-week highs (50 new highs today): Accenture (ACN +$1.08 to $291.80), CSX Corp (CSX +$0.53 to $103.21), Danaher (DHR +$8.87 to $253.11), Dish Network (DISH +$1.00 to $41.95)

Notable Call Activity

iShares Investment Grade Corporate Bond ETF (LQD -$0.14 to $131.30): Some unusual block activity was seen on the June 18th 133 calls (open interest is 25,548) this morning as follows:

  • Several blocks (2,035, 2,232, 2214, 2213, 2,500, 2,350, 1,646 etc.) were sold at the bid price of $0.41
  • Another block of 26k was sold at the bid price of $0.40

Aggregate volume on this contract is 51,842 making it the 10th most active contract in the market today. Given the open interest, we can be certain that at least the 26k block was a new position. And while it’s impossible to know for sure, given the high margin requirements of naked calls, it is likely that much of this activity is covered calls against an existing long position, or part of a multi-leg strategy against other options already owned by this trader(s).

Today’s Bearish Activity    

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

  • Biogen Inc. (BIIB $260, -3.3%): The biopharmaceutical company reported Q1 adjusted earnings of $5.34 per share, down from $9.14 per share a year earlier, but ahead of analysts’ expectations of $4.96. Revenue fell 23.8% y/o/y to $2.69B (above the $2.65B expected). Looking ahead the company raised its adjusted EPS outlook for full-year 2021 to $17.50-$19.00 per share, up from the previous guidance of $17.00-$18.50 per share, and also reaffirmed its revenue guidance for the year at $10.45B-$10.75B. Shares of BIIB are currently trading below the 50-day, 100-day and 200-day SMA. Calls and puts are trading in roughly equal quantities, with the April 23rd 250 put topping the most actives list (volume is 205).
  • Lam Research (LRCX $622, -3.1%): The semiconductor equipment maker reported fiscal Q3 earnings of $7.49 per share excluding non-recurring items, $0.90 ahead of the consensus estimate of $6.59, on revenue that rose 53.7% y/o/y to $3.85B, also ahead of the $3.72B estimate. The company issue upside guidance for Q4; saying they expect EPS of $7.00-$8.00, ahead of the current $6.73 estimate, and revenue of $3.75-$4.25B, also ahead of the current $3.71B estimate. Call volume is ahead of put volume about 3:1 with the April 23rd 630 call topping the most actives list (volume is 2,875).
  • Nucor Corp (NUE $76, -4.9%): The steel maker announced record Q1 quarterly earnings of $942.4M or $3.10 per share (versus $1.30 per share in Q4 2020 and $0.07 per share in Q1 2020); ahead of the $3.08 estimate. Q1 revenue came in at $7.02B, below the consensus estimate of $7.31B. Nucor’s CEO, Leon Topalian said, “We are clearly reaping the rewards from our prior investments and the more strategic approaches we are taking to our key end-user markets”. Looking ahead, NUE said it expects earnings in Q2 to exceed Q1 results. Calls are outpacing puts about 50:1 with the July 16th 95 call seeing the most action (volume is 2,413).  

New 52-week lows (2 new lows today): Emergent Biosolution (EBS -$3.64 to $62.36), Neubase Therapeutics (NBSE -$0.47 to $5.53)

Notable Put Activity  

Some unusual put activity (~40:1 over calls) is being seen in the iShares High Yield Corporate Bond ETF (HYG +$0.02 to $87.32) as 9 of the top 10 most active contracts are puts. The bulk of the activity is being directed toward the following 3 contracts:

  • 6/18/2021 85 puts: volume is 22,414 (versus open interest of 150,759) including a 3k block and a 15k block that were both bought at $0.56
  • 5/21/2021 85 puts: volume is 8,608 (versus open interest of 211,382) including a 2k block that was sold at $0.22 and a 5k block that was bought at $0.23
  • 6/18/2021 81 puts: volume is 4,142 (versus open interest of 125,116) including a 3.1k block that was sold at $0.20

Given the open interest figures, we can’t be certain how much of this is opening versus closing activity.  

Volume Signals       

Shares of NIO Inc. (NIO +$1.32 to $40.22) are trading higher after Goldman Sachs downgraded EV maker Fisker Inc. (FSR -$1.06 to $14.11) from “Neutral” to “Sell” and cut their price target on the stock to a street-low $5.00; option traders are taking note. Calls on NIO are outpacing puts roughly 4:1 which is primarily being driven by activity on 5 contracts which expire in April:

  • 4/23/21 40.00 calls: volume is 54,050 (vs. open interest of 18,280)
  • 4/30/21 40.00 calls: volume is 21,101 (vs. open interest of 16,330)
  • 4/23/21 39.00 calls: volume is 20,736 (vs. open interest of 10,101)
  • 4/23/21 41.00 calls: volume is 19,314 (vs. open interest of 8,166)
  • 4/23/21 39.50 calls: volume is 14,676 (vs. open interest of 5,230)

NIO is the 5th most actively traded name in the options market today with aggregate volume greater than 407k contracts.

Gauging Volatility

The CBOE Volatility Index (VIX +1.03 to 18.32) has been on both sides of the unchanged line today (the intraday range is 16.99-18.50) as equity markets are lower across the board around the mid-day mark (DJI -202, SPX -16, COMPX -32). VIX option volume has been rather light today (currently missing from the top 10 most actives list) and the activity has been call-biased (the volume put/call ratio is 0.63). The most actively traded contract being the June 16th 45.00 call as volume is 25,026 versus open interest of 82,070.

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.