Strong Option Activity and a Scheduling Note
October 13, 2022
Before I dive into the market, I did want to let you know that I will be traveling tomorrow through much of the weekend. That means I will not be writing the usual Monday morning update. However, come Monday morning I will be back at the trading desk.
Moving on …
This morning the market puked lower following a hotter-than-expected CPI report. However, the nearly 2% flush lower in the indexes shortly after the open was quickly bought, and as of – eastern the S&P 500 is trading higher on the day by 2.4%.
This market turnaround, IF it holds, is encouraging, though to be fair, the indexes have fallen apart yet again in the last week, so perhaps we were due for a “dead cat bounce.”
Potentially more encouraging to me than today’s market rebound is we are seeing the first day of large-scale call buying in leading stocks. Here are some of those trades:
Buyer of 10,000 Amazon (AMZN) December 100 Calls for $14.65 – Stock at 108.5
Buyer of 17,500 Taiwan Semiconductor (TSM) January 60 Calls for $10.42 – Stock at 67
Buyer of 16,000 Caterpillar (CAT) December 195 Calls for $4.50 – Stock at 177
Buyer of 18,000 Square (SQ) December 65 Calls for $3 – Stock at 52
Buyer of 13,000 Doordash (DASH) December 35 Calls for $12.85 – Stock at 45
What I find most interesting about the trades listed above, other than the large volumes of these call buys, is that they are all targeting a market rebound in the December/January time frame.
Maybe, just maybe, we could see a market rebound to close out the year … though we will have to see more than one day of market strength and options activity before I am ready to start pushing aggressively bullish again.
Finally, if I were to rate the trades listed above in terms of trades I like best, if I was looking to add bullish exposure, I would lean towards the AMZN and TSM trades as these are in-the-money, high-conviction positions, that will explode in value if the stocks were to rally.
Stocks on Watch – Citigroup (C)
October 12, 2022
Earnings season kicks off Friday before the market open, as many of the leading financials will report that morning, including JPM, MS, USB, WFC, and Citigroup (C).
Headed into that morning of earnings announcements, I would characterize option order flow in those stocks as mostly mixed, outside of C, which has seen a trader aggressively buy November calls looking for the stock to move higher in the next month. Here are those trades:
Today - Buyer of 20,000 Citigroup (C) November 45 Calls for $0.77 – Stock at 40.75 (rolled back from November 50 calls)
Yesterday - Buyer of 21,000 Citigroup (C) November 45 Calls for $0.95 – Stock at 41.5 (rolled back from November 50 calls)
The financials have been a train wreck as of late, along with the market, as fears of a recession, as well as counterparty risk to European financials, have weighed on the U.S. banks. Because of those worries, I am not going to get involved with C, or any of the financials, ahead of earnings. However …
If I wanted to get bullish exposure to C, based on the buying of the November calls above, I would likely target a call with more time until expiration, as well as at a strike price closer to the current stock price. Perhaps:
Buy the March 42.5 Calls for $3.50
Or
Buy the March 42.5/50 Bull Call Spread for $2.35
Finally, tomorrow we will get the much-anticipated CPI report, which is the last major inflation data point ahead of the November Federal Reserve meeting.
The options market is pricing in an approximate move of 3% on this economic data release … Buckle up!
Weekly Update
October 10, 2022
A very promising start to the trading week, which saw the indexes surge higher by 5%, was somewhat washed away by Friday’s post Jobs Report sell-off. And while the steep declines Friday were worrisome, big picture the S&P 500 still managed to gain 1.5% on the week, the Dow rallied 2%, and the Nasdaq added 0.7%.
Stocks on Watch
Having taken a stab at a PINS position last week, and CCJ and PYPL in previous weeks, I am not in a great rush to add even more exposure given market conditions. Also, I want to keep as much dry powder available headed into earnings season.
That being said, I am again impressed by oil stocks, many of which soared higher the last three weeks. And on Friday traders bought upside calls in the following stocks:
Buyer of 3,000 BP (BP) January 35 Calls for $1.14 – Stock at 31.35
Buyer of 23,000 Ovintiv (OVV) October 60 Calls for $1.20 – Stock at 56.5.
I’ve also noted call buying in Schlumberger (SLB) as well as Devon Energy (DVN), and really all of the leading oil players. This sector, which was the best performer in the first half of the year, could be ready to bust out yet again in the fourth quarter.
Next up is unusual put buying activity in several credit card companies on Thursday of last week. Here are those trades:
Buyer of 25,000 Synchrony Financial (SYF) November 28 Puts for $1.10 – Stock at 31.5
Buyer of 5,400 Visa (V) October 185 Puts for $4.05 – Stock at 186.5
Buyer of 2,500 Capital One (COF) November 92.5 Puts for $4.60 – Stock at 97.
Finally, as hard as it is to believe, Apple (AAPL) and Microsoft (MSFT) still look like two of the most susceptible stocks to get hit should the market continue to weaken. And coming off a nasty earnings warning Thursday evening, you can throw Advanced Micro Devices (AMD) in the former market leader that could come under pressure category.
Volatility
The Chicago Board of Options Exchange Volatility Index (VIX) closed Friday at 31.40, or marginally higher on the week. I expect that the VIX will remain elevated through the big economic data later this week (more on that in Events for the Week to Come). Option Order Flow was fairly mixed this past week as my Options Barometer came in at:
Monday – 5
Tuesday – 5
Wednesday – 5
Thursday - 5
Friday – 4
Events for the Week to Come
This week, following a strong Jobs Report Friday that likely emboldened the Federal Reserve’s hawkish stance on interest rate hikes, traders will be laser focused on inflation data via the Producer Price Index (PPI) on Wednesday and the Consumer Price Index (CPI) on Thursday.
Also, this is the first week of earnings season, led by the financials Citigoup (C), JPMorgan (JPM), Morgan Stanley (MS) and Wells Fargo (WFC).
What Traders are Saying
This week in What Traders are Saying I again wanted to share a great question from a COT/COTP subscriber.
COT/COTP Subscriber: Your fellow Cabot colleague Mike Cintolo added half positions in Wolfspeed (WOLF) and Wingstop (WING). If I wanted to get bullish exposure to these stocks, how might you recommend doing so?
Jacob: I also like the way WOLF and WING have been trading. Though until the market shows any true signs of life, I am going to only take a stab here or there, and then cut bait if I need to.
However, if I was looking to get bullish exposure to WOLF and WING, as usual I would target calls with 3-9 months until expiration, and with at-the-money-call buys.
For example …
Buy the WOLF March 110 Call for $21
Or
Buy the WOLF March 110/150 Bull Call Spread for $14
And …
Buy the WING March 130 Call for $23
Or
Buy the WING March 130/160 Bull Call Spread for $14
Big picture, similar to our PINS purchase last week, I like what Mike is doing buying WOLF and WING … being in the best-looking stocks for when the market turns higher is the best way to capitalize should conditions improve.
Open Positions
Biotech ETF (XBI) January 84 Call – The XBI was mostly unchanged last week. Not much more to add.
Alphabet (GOOGL) February 120 Calls – GOOGL gained 3.25% on the week, which was an improvement from previous weeks. Alphabet will report earnings the last week of October.
Macy’s (M) Stock – M rose 11% and call activity was very strong. I’m close to selling a new call against our stock position but also don’t want to force anything when call buying is so aggressive.
Occidental Petroleum (OXY) December 65 Call – OXY gained 14% last week as the oil stocks took off again. Our position is in great shape, especially if oil stocks resume their leadership in the fourth quarter.
PayPal (PYPL) March 97.5 Call – PYPL looked ready to bust out to the upside Thursday, before pulling in with the market on Friday. Stepping back, the stock still looks good, having rallied 5% on the week.
Pinterest (PINS) March 25 Call – Last week we took our first stab at a bullish position in a couple of weeks with a buy of the PINS March 25 calls for $4.70. The stock surged higher on Thursday a couple days after our call buy, and held up really well Friday even as the market got crushed.
S&P 500 ETF (SPY) March 420 Puts – For better or worse our SPY puts are at a potential profit of approximately 140%.
Starbucks (SBUX) January 85 Calls – SBUX rallied 3.3% and still looks like a leader should the market get in gear. I like our position.
