Today's Options Market Update

Stocks higher to start August, driven by upbeat manufacturing data.

U.S. equities are higher in midday trading of the first session of August, as investors sift through mostly positive manufacturing data from across the world. The reports and upbeat global sentiment are helping to dampen recent uncertainty surrounding economic and earnings implications of the spreading Delta variant. Corporate reports are light today after Q2 earnings season hit is pinnacle last week, with Global Payments besting expectations, while raising its guidance and dividend. In other equity news, Square will acquire Afterpay for $29 billion in stock. Treasuries are higher, putting downward pressure on yields, and the U.S. dollar is ticking lower, while gold is nudging higher and crude oil prices are falling. Asia began the week on a high note and Europe is adding to gains in late-day trading.

At 10:51 a.m. ET, the Dow Jones Industrial Average and the Nasdaq Composite are increasing 0.5%, and the S&P 500 Index is advancing 0.4%. WTI crude oil is down $1.81 at $72.20 per barrel, Brent crude oil is decreasing $1.25 to $74.16 per barrel. The gold spot price is inching $1.10 higher to $1,817.80 per ounce, and the Dollar Index—a comparison of the U.S. dollar to six major world currencies—is moving 0.2% to 91.97. Natural Gas prices have traded in a range of $3.955-4.042 and were last seen trading higher by $0.107 (or +2.73%) to $4.021/MMBtu.

Source: Schwab Center for Financial Research

Today’s Bullish Activity

Shares of Square Inc. (SQ + $28.24 to $275.50) are rallying to a three-month high this morning following news that the digital payments platform is acquiring Australian “buy now, pay later” firm Afterpay in an all-stock transaction valued at approximately $29B. Square said that the acquisition is expected to close in Q1 2022 and provides an opportunity to capitalize on a shift away from traditional credit, especially among young consumers. Concurrent with the deal announcement, SQ reported Q2 earnings of $0.66 per share ($0.35 beat) on revenue that rose 143.3% year-over-year to $4.68B (below the $5.05B expected). Calls are outnumbering puts roughly 5:2 with the August 6th 270.00 call seeing the most action from traders (volume is 29,222).

Also trading to the upside is ArcBest Corp. (ARCB + $2.13 to $61.24) after the supply chain logistics company reported Q2 earnings of $1.97 per share, excluding non-recurring items ($0.33 beat) on revenue that rose 51.3% year-over-year to $949M (above the $931.98M expected).). Shares of ARCB are trading just below the 50-day Simple Moving Average (currently $62.30) at the time of this writing. Calls and puts are trading roughly even with the August 20th 55.00 put being the most actively traded contract (volume is 536).

Lastly, shares of Levi Strauss & Co. (LEVI + $1.48 to $29.00) are higher after Stifel initiated coverage on the denim maker with a “Buy” rating and put a $38.00 price target on the stock. Stifel analyst Jim Duffy stated, “We expect a multi-year denim upgrade cycle behind a post COVID-19 style shift to wider/looser silhouettes and, for women, higher waist styles. LEVI’s has been leading this transition and consumers are increasingly engaging directly with the brand." Calls are outpacing puts roughly 20:1 with the August 20th 30.00 call topping the most actives list (volume is 1,173).

 

New 52-week highs (178 new highs today): Autodesk Inc. (ADSK + $1.54 to $322.67), Cisco Systems Inc. (CSCO + $0.42 to $55.79), Morgan Stanley Inc. (MS + $1.10 to $97.08)

Notable Call Activity

Some unusual call activity (~8:1 over puts) is being seen in Affirm Holdings Inc. (AFRM + $9.38 to $65.70) which is primarily being driven by activity on two contracts on the August 20th expiration:

  • 70.00 call (volume is 10,259 vs. open interest of 5,133): The majority of the transactions on this contract consisted of various-sized blocks that were being bought at various times for between $0.45 and $0.90 each (suggesting bullish intent).
  • 65.00 call (volume is 5,622 vs. open interest of 2,418): The bulk of the transactions on this contract consisted of various-sized blocks that were being bought at various times for between $2.50 and $3.70 each (suggesting bullish intent).

Express Inc. (EXPR + $0.39 to $5.08): Calls are outpacing puts ~100:1 as option traders primarily target the August 6th 5.00 call as volume is 18,096 versus open interest of 1,490 (suggesting that this primarily represents new positioning). The bulk of the transactions on this contract consisted of various-sized blocks that were being bought at various times at the ask prices of $0.25 and $0.30 each, which suggests bullish intent.  

Today’s Bearish Activity    

Leading the percentage decliners list this morning is TG Therapeutics Inc. (TGTX - $7.99 to $27.00) after the commercial stage biotechnology company reported a Q2 loss of $0.59 per share ($0.07 miss) on revenue of $1.50M, which is above the $38K reported in the year-ago quarter but below the $3.5M analysts had expected. Shares of TGTX are trading at a year-to-date low this morning. Calls and puts are trading roughly even with the August 20th 25.00 put being the most actively traded contract (volume is 2,031).

Also trading to the downside today is Ferrari N.V. (RACE - $4.61 to $213.70) after the luxury sports car maker reported Q2 earnings of €1.11 per share, excluding non-recurring items (€0.10 beat) on revenue that rose 81.3% year-over-year to €1.03B (below the €1.05B expected). The company issued downside guidance as fiscal-year 2021 EPS is expected to come in a range of €4.00-4.20 versus the €4.23 consensus estimate. Calls are outnumbering puts roughly 5:1 with the November 19th 220.00 call being the most actively traded contract (volume is 4,456).

 

New 52-week lows (24 new lows): Autohome Inc. (ATHM + $0.70 to $46.00), Campbell Soup Co. (CPB - $0.30 to $43.42), Las Vegas Sands Inc. (LVS - $0.07 to $42.28)

Notable Put Activity

Some unusual put activity (~10:1 over calls) is being seen in Kraft Heinz Co. (KHC + $0.08 to $38.55) which is primarily being driven by some spread activity on the August 6th expiration earlier this morning:

  • 38.50 put (open interest is 434): Several mid-sized blocks (902, 902, 750, 500) were bought around the same time for $0.77 when the bid/ask spread was $0.66 x $0.80.
  • 36.00 put (open interest is 45): Several mid-sized blocks (902, 902, 750, 500) were sold around the same time at the bid price of $0.12.

We know these blocks are new positions based on the respective open interest figures and it appears that a $2.50-wide bear put spread was established for a net debit of $0.65 (x 3,054 contracts x 100 multiplier, excluding commissions) which suggests that the block trader believes that KHC will close below the break-even price of $37.85 by the end of this week. The positioning appears to be an “earnings play” as KHC is scheduled to report Q2 earnings on Wednesday (August 4th) before the bell.  

Volume Signals       

Royal Bank of Canada (RY - $0.01 to $100.23): Option volume is running at roughly 80x the daily average of 137 contracts which is primarily being driven by two large blocks that simultaneously traded on the January 2022 expiration earlier this morning:

  • 100.00 put (open interest is 1,023): A 6,000 contract block was sold at the bid price of $4.50.
  • 75.00 put (open interest is 893): A 6,000 contract block traded for $0.60, directly in the middle of the $0.50 x $0.70 bid/ask spread.

We know these blocks are new positions based on the respective open interest figures and since the block trade on the 100.00 put took place at the bid price, it appears that a $25.00-wide bull put spread was established for a net credit of $3.90 (x 6,000 contracts x 100 multiplier, excluding commissions), which suggests that the block trader believes that RY will close above the break-even price of $96.10 at expiration.

The Toronto-Dominion Bank (TD - $0.46 to $65.99): Option volume is running at over 25x the daily average of 245 contracts which is primarily being driven by two large blocks that simultaneously traded on the January 2023 expiration earlier this morning:

  • 65.00 put (open interest is 10): A 6,500 contract block was sold for $5.93 when the bid/ask spread was $5.90 x $6.50.
  • 45.00 put (open interest is 18): A 6,500 contract block was bought for $1.18 when the bid/ask spread was $1.00 x $1.20.

We know these blocks are new positions based on the respective open interest figures and it appears that a $20.00-wide bull put spread was established for a net credit of $4.75 (x 6,500 contracts x 100 multiplier, excluding commissions), which suggests that the block trader believes that TD will close above the break-even price of $60.25 at expiration.

Commscope Holding Co. (COMM - $0.19 to $20.97): Option volume is running at roughly 12x the daily average of 239 contracts which is primarily being driven by a 2,488 contract block that was bought on the August 20th 22.00 put for $1.60 when the bid/ask spread was $1.25 x $1.70 (open interest is 31). 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 above the midpoint of the bid/ask spread. COMM is slated to report Q2 earnings on Thursday (August 5th) before the bell, so this positioning captures the potential impact of that event.   

Match Group Inc. (MTCH + $2.81 to $162.08): Option volume is running at nearly 7x the daily average of 1,970 contracts which is primarily being driven by three large blocks that simultaneously traded on the August 6th expiration earlier this morning:

  • 177.50 call (open interest is 31): A 2,000 contract block was sold at the bid price of $0.91.
  • 162.50 call (open interest is 148): A 2,500 contract block was bought for $4.80 when the bid/ask spread was $4.40 x $4.85.
  • 145.00 put (open interest is 46): A 3,000 contract block was sold for $1.35 when the bid/ask spread was $1.33 x $1.53.

We know these blocks are new positions based on the respective open interest figures and it appears that a risk reversal call spread was established (in a 4:5:6 ratio) for a net debit of $3.065 (x 2,000 contracts x 100 multiplier, excluding commissions), which suggests that the block trader believes that MTCH will close above the break-even price of $165.565 at expiration. The positioning appears to be an “earnings play” as MTCH is scheduled to report Q2 earnings on Tuesday (August 3rd) after the bell.  

Gauging Volatility

The CBOE Volatility Index (VIX + 1.39 to 19.63) has been on both sides of the unchanged line today (the intraday range is 17.99-19.67) as equity markets are higher around the mid-day mark today (DJI + 11, SPX + 4, COMPX + 47). VIX option volume has been tepid today as the index is currently missing from the top 10 most actives list. The most actively traded contract is the September 15th 15.00 put as volume is 36,682 versus open interest of 40,370.   

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.

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