U.S. equities are rising in midday trading. The S&P 500 is looking to snap a seven-week losing streak after flirting with bear market territory on Friday and briefly dropping below that level intra-day. Inflation and the ensuing hawkish monetary policy continue to be headwinds along with fears of slowing economic growth and the ongoing war in Ukraine. In M&A news, cloud computing company VMWare is reportedly in advanced talks to be acquired by chipmaker Broadcom. Meanwhile, Pfizer is rising after reporting results from its COVID vaccine trial on children under the age of 5. The economic calendar is dormant today but is set to heat up later this week with Fed meeting minutes, initial jobless claims, and consumer sentiment headlining the week. Treasuries are dipping as yields are ticking higher. The U.S. dollar is dropping, while crude oil is losing ground, and gold is rising. Europe is mixed following comments from European Central Bank President Christine Lagarde who indicated that negative rates are likely to be over by the end of Q3. Asia finished mixed, although President Biden said he is considering lifting some Chinese tariffs to help combat inflation.
As of 10:55 a.m. ET, the Dow Jones Industrial Average is up 1.6%, the S&P 500 is rising 1.1%, and the Nasdaq Composite is increasing 0.4%. WTI crude oil is falling $0.67 at $109.61 per barrel, and Brent crude oil is decreasing $0.37 at $112.18 per barrel. The gold spot price is trading $10.60 higher to $1,852.70 per ounce, and the Dollar Index is falling 1.0% at 102.19. Natural Gas prices have traded in a range of $7.851-8.282 and were last seen trading higher by $0.182 (or +2.25%) to $8.265/MMBtu.
Source: Schwab Center for Financial Research
Today’s Bullish Activity
Shares of JP Morgan Chase & Co. (JPM + $3.91 to $121.25) are moving higher this morning after the banking giant lifted its forecast for net interest income (NII) and affirmed its profitability target at the company’s investor conference earlier this morning. The company said that it now expects 2022 NII, excluding market business, to reach $56.0B, versus a prior expectation for NII to be a “couple billion” more than $53.0B. Shares of JPM hit a six-month low of $115.02 during Friday’s trading session. Calls are outnumbering puts ~5:2 with the May 27th 122.00 call leading the Top Volume list (volume is 3,719).
Also trading to the upside this morning is VMware Inc. (VMW + $17.71 to $113.42) after Reuters reported on Sunday that chip maker Broadcom Inc. (AVGO - $25.75 to $517.44) is in talks to buy the company. Reuters added that the financial terms of the potential deal were not clear and there is no guarantee that a deal of any kind will be reached. VMW calls are outnumbering puts ~4:3 with the June 17th 115.00 call seeing the most action from traders (volume is 1,005).
New 52-week highs (16 new highs today): Cenovus Energy Inc. (CVE + $0.45 to $21.81), Marathon Petroleum Corp. (MPC + $1.82 to $98.38), Suncor Energy Inc. (SU + $1.07 to $39.15)
Notable Call Activity
Some unusual call activity (~5:1 over puts) is being seen in Starbucks Corp. (SBUX + $0.61 to $74.00) which is primarily being driven by a 45,900 contract block that was bought on the December 16th 85.00 call for $2.85 when the bid/ask spread was $2.77 x $2.90 (open interest is 485). We know this block is a new position given the open interest figure and we can assume the intent is bullish in nature since the trade took place above the midpoint of the bid/ask spread.
Today’s Bearish Activity
Moving lower this morning is Autodesk Inc. (ADSK - $14.46 to $176.95) after Deutsche Bank downgraded the maker of enterprise software to “Hold” from “Buy” and lowered their price target on the stock to $225.00 from $275.00. Analysts at Deutsche Bank cited downside to fiscal-year 2023 estimates from changing demand, potentially lower adoption of multi-year contracts, foreign exchange effects and the Russia-Ukraine conflict. Shares of ADSK are trading at 52-week lows this morning. Puts are outnumbering calls ~2:1 with the May 27th 190.00 put being the highest volume contract (volume is 525).
Also trading to the downside is HP Inc. (HPQ - $0.44 to $34.21) after Citigroup downgraded the PC maker to “Neutral” from “Buy” and cut their price target on the stock to $38.00 from $40.00, citing supply chain challenges, macro inflationary woes and “moderating PC demand growth in the near to mid-term.” Shares of HPQ are trading just above the 200-day Simple Moving Average ($34.04) at the time of this writing. Calls are slightly outnumbering puts with the June 17th 36.00 call leading the way (volume is 809).
New 52-week lows (49 new lows today): American Eagle Outfitters Inc. (AEO - $0.60 to $12.72), Brinker International Inc. (EAT - $1.07 to $26.29), Planet Fitness Inc. (PLNT - $1.61 to $63.58)
Notable Put Activity
Some unusual put activity (better than 8:1 over calls) is being seen in Discover Financial Services Inc. (DFS + $5.29 to $109.11) which is primarily being driven by a 5,000 contract block that was bought on the June 17th 100.00 put for $2.45 when the bid/ask spread was $2.25 x $2.60 (open interest is 319). We know this block is a new position based on the open interest figure and we can assume that the intent is bearish in nature since the trade took place above the midpoint of the bid/ask spread.
ChargePoint Holdings Inc. (CHPT - $0.01 to $11.00): The 5th and 7th highest volume option contracts in the market today are on this provider of EV-charging networks and solutions:
- 6/3/2022 11.50 call (volume is 86,496 vs. open interest of 642): The activity included a 19,800 contract block that was bought at the ask price of $0.48.
- 6/3/2022 13.50 call (volume is 86,496 vs. open interest of 642): The activity included a 19,800 contract block that was simultaneously sold at the bid price of $0.10.
We know these blocks are new positions given the respective open interest figures and it appears that a $2.00-wide bull call spread was established for a net debit of $0.38 (x 19.80K contracts x 100 multiplier, excluding commissions). The position suggests that the block trader believes that CHPT will close above the break-even price of $11.88 at expiration.
Snap Inc. (SNAP - $0.93 to $22.33): The 8th highest volume option contract in the market today is the SNAP 6/3/2022 17.50 put as volume is 80,133 versus open interest of 10. The bulk of the volume on this contract is being attributed to two 32,330 contract blocks that were sold around the same time at the bid price of $0.13. We know these blocks are new positions based on the open interest figure and we can assume that the block trader(s) believes that SNAP will close above the $17.50 price level and/or is comfortable taking a long position in the stock in the event that it closes below $17.50 at expiration.
National Instruments Corp. (NATI + $1.93 to $35.22): Option volume is running at ~18x the daily average on this provider of software-centric platform and systems to engineers and scientists worldwide which is primarily being driven by activity on the June 17th 35.00 call. Volume on this contract is 2,533 versus open interest of 282, so we know that the volume primarily represents new positioning. The majority of the transactions on this contract consisted of various-sized blocks that were being bought at various times at the ask prices of $0.85 & $0.90 each, which suggests bullish intent.
Melco Resorts & Entertainment Ltd. (MLCO - $0.10 to $5.36): A couple of large blocks were seen simultaneously trading on the October 21st expiration earlier this morning:
- 10.00 call (open interest is 1,976): A 1,499 contract block was bought for $0.39 when the bid/ask spread was $0.20 x $0.50.
- 15.00 call (open interest is 404): A 1,499 contract block was sold for $0.14 when the bid/ask spread was $0.00 x $0.30.
Assuming both of these blocks are new positions, it appears that a $5.00-wide bull call spread was established for a net debit of $0.25 (x 1,499 contracts x 100 multiplier, excluding commissions). The positioning suggests that the block trader believes that MLCO will close above the break-even price of $10.25 at expiration.
The CBOE Volatility Index (VIX - 0.42 to 29.01) has been on both sides of the unchanged line today (the intraday range is 28.93-30.39) as equity markets are firmly higher across the board around the mid-day mark (DJI + 663, SPX + 68, COMPX + 138). VIX option volume has been below average today at 234,322 contracts which puts the index at the #10 spot on the “Top Volume by Underlying” list. Today’s options activity has been call-biased (the volume put/call ratio is currently 0.46), with the highest volume contract being the August 17th 75.00 call as volume is 40,052 versus open interest of 108,793.
RH Inc. (RH - $3.80 to $264.80): Average implied volatility is up to a 10-week high this morning (~80%) as the stock drops to a 52-week low. 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.
© Charles Schwab
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