U.S. stocks are oscillating around the flatline after reversing pre-market gains following a larger-than-expected acceleration in weekly initial jobless claims and after the monetary policy decision from the European Central Bank (ECB). The ECB held its stance steady but said it plans to end its asset purchase program July 1 and then raise its benchmark interest rate by 25 basis points that month as well after downgrading its economic growth outlook and boosting its inflation forecast. The markets are choppy amid festering inflation concerns and on the eve of tomorrow's key May consumer price data. Treasuries are mixed as yields on the short-and-mid range of the curve are rising and the U.S. dollar has turned higher. Crude oil prices are cooling off after jumping above $122 per barrel yesterday and gold is seeing some pressure. In equity news, Target Corporation raised its quarterly dividend by 20.0%, and Signet Jewelers topped earnings forecasts and issued favorable guidance, while Five Below missed revenue estimates and lowered its guidance. Asia finished mixed as Chinese and Hong Kong markets moved lower as Shanghai renewed some COVID lockdowns, and Europe is trading lower after the ECB's decision.
At 10:35 a.m. ET, the Dow Jones Industrial Average is down 0.2%, and the S&P 500 is declining 0.4%, while the Nasdaq Composite is ticking 0.1% higher. WTI crude oil is nudging $0.26 lower to $121.85 per barrel, and Brent crude oil is rising $0.09 at $123.67 per barrel. The gold spot price is down $14.00 to $1,842.50 per ounce, and the Dollar Index is advancing 0.4% at 102.95. Natural Gas prices have traded in a range of $8.016-8.715 and were last seen trading lower by $0.325 (or -3.74%) to $8.374/MMBtu.
Source: Schwab Center for Financial Research
Today’s Bullish Activity
Moving higher this morning is Tesla Inc. (TSLA + $18.17 to $743.77) after the China Passenger Car Association (CPCA) reported that Tesla sold 32,165 China-made vehicles in May, which is up from 1,152 vehicles in April. Separately, UBS upgraded TSLA to “Buy” from “Neutral” while maintaining their $1,100 price target on the stock. Calls are outnumbering puts ~4:3 with the June 10th 800.00 call garnering the most attention from traders (volume is 89,285).
Also trading to the upside is Signet Jewelers Ltd. (SIG + $1.11 to $47.71) after the world’s largest retailer of diamond jewelry reported fiscal Q1 earnings of $2.86 per share ($0.48 beat) on revenue that rose 8.9% year-over-year to $1.84B (above the $1.81B expected) as same-store sales increased 2.5% year-over-year. Looking ahead, the company said that Q2 revenue is expected to come in a range of $1.79-1.82B (in-line with the $1.81B consensus estimate) and fiscal-year 2023 EPS is expected to come in a range of $12.72-13.47 with FY23 revenue expected to come in a range of $8.03-8.25 (vs. the respective $11.81 and $8.03B consensus estimates). Calls are outnumbering puts ~5:3 with the June 17th 65.00 call topping the most actives list (volume is 2,099).
New 52-week highs (16 new highs today): HF Sinclair Corp. (DINO + $0.37 to $57.72), PrimeEnergy Resources Corp. (PNRG + $1.66 to $99.54), Safety Insurance Group Inc. (SAFT + $1.73 to $94.20)
Notable Call Activity
Some unusual call activity (~9:1 over puts) is being seen in Direxion Daily FTSE China Bear 3X Shares (YANG + $0.92 to $12.31) as option traders are primarily targeting the June 17th 14.00 call. Volume on this contract is 3,255 versus open interest of 464, so we know that the volume primarily represents fresh positioning. The bulk of the volume on this contract is being attributed to a 1,500 contract block that was bought at the ask price of $0.40 and (around the same time) a 1,500 contract block that was bought for $0.35 when the bid/ask spread was $0.25 x $0.40. We know both of these blocks are new positions based on the open interest figure and we can assume the intent is bullish in nature given where the trades took place within the bid/ask spread. Note: Since this is a bearish fund, the call buying suggests that the block trader(s) are bearish on Chinese equities.
Today’s Bearish Activity
Shares of Zendesk Inc. (ZEN - $7.31 to $73.21) are gapping down this morning after the customer-service software company said that it has decided to continue as an independent public company after completing a strategic review. The company said that it will hold its annual shareholder meeting on August 17th after activist investor Jana Partners threatened to sue the company over failure for setting a date for the event. Shares of ZEN hit a two-year low of $68.10 earlier in the trading session. Puts are outnumbering calls better than 2:1 with the July 15th 65.00 put leading the way (volume is 4,439).
Also trading to the downside is iRhythm Technologies Inc. (IRTC - $12.97 to $136.25) after Citigroup downgraded the digital healthcare solutions company to “Neutral” from “buy” and cut their price target on the stock to $155.00 from $180.00. Today’s ~8% drop in IRTC puts the stock below its 50-day Simple Moving Average of $138.53. Option volume is relatively light with the August 19th 45.00 put being the highest volume contract (volume is 10).
New 52-week lows (87 new lows today): Boston Properties Inc. (BXP - $1.41 to $101.73), Carvana Co. (CVNA - $0.95 to $24.25), Stryker Corp. (SYK - $3.13 to $223.54)
Notable Put Activity
Some unusual put activity (~200:1 over calls) is being seen in PennyMac Mortgage Investment Trust (PMT + $0.18 to $16.31) which is primarily being driven by a 4,500 contract block that was bought on the January 2023 12.50 put at the ask price of $0.75 (open interest is 88). We know this block is a new position based on 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
StepStone Group Inc. (STEP + $0.07 to $28.18): Option volume is running at nearly 400x the daily average on this investment firm which is primarily being driven by a 1,000 contract block that was sold on the September 16th 25.00 put for $1.10 when the bid/ask spread was $0.35 x $2.45 (open interest is 0). We know this block is a new position based on the open interest figure and we can assume that block traders believe that STEP will close at or above the $25.00 price level and/or is comfortable taking a long 100,000 share position in the stock at an effective purchase price of $23.90 in the event that it closes below $25.00 at expiration.
FutureFuel Corp. (FF + $0.32 to $7.99): Option volume is running at over 34x the daily average on this manufacturer of custom and performance chemicals and biofuels which is primarily being driven by activity on the July 15th 10.00 call. Volume on this contract is 2,322 versus open interest of 2, so it’s likely that the volume represents nearly all 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 $0.15 & $0.20 each, which suggests bullish intent.
Obsidian Energy Ltd. (OBE - $0.50 to $11.35): Option volume is running at over 23x the daily average on this oil & natural gas producer which is primarily being driven by activity on the January 2023 12.50 call. Volume on this contract is 2,005 versus open interest of 48, so it’s likely that the volume represents nearly all 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 price of $2.45 each, which suggests bullish intent.
Gauging Volatility
The CBOE Volatility Index (VIX + 0.44 to 24.40) has been on both sides of the unchanged line today (the intraday range is 23.82-24.91) as equity markets are lower across the board around the mid-day mark (DJI - 70, SPX - 13, COMPX - 60). VIX option volume has been tepid today as the index is currently missing from the “Top Volume by Underlying” list. Today’s options activity has been call-biased (the volume put/call ratio is currently 0.90), but the highest volume contract is the June 15th 24.00 put as volume is 19,631 versus open interest of 202,454.
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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