Today's Options Market Update

Yields Fall Ahead of Long Weekend, Inauguration

January 17, 2025 Joe Mazzola

The continued retreat from 14-month high Treasury yields gave stocks an early lift ahead of a long weekend and Monday's inauguration. Housing data exceeded expectations.

#--bcn-image--2205{display: none !important;}

Note to readers: U.S. markets are closed Monday, January 20, in observance of the birthday of Dr. Martin Luther King, Jr. The Options Market Update will return on Tuesday, January 21.

Solid housing data kicked off the final session before the long weekend, stocks tracked higher, and Treasury yields retreated as the futures market built in slightly better odds of a mid-year rate cut. The 10-year Treasury note yield (TNX:CGI) fell below 4.6% this morning, still reacting to Wednesday's cooler-than-expected December Consumer Price Index (CPI), but it's unclear if this pullback from the recent 14-month high of 4.8% can last.

"The yield curve is likely to continue to steepen," said Kathy Jones, chief fixed income strategist at Schwab. "The 10-year Treasury yield could trade in the 4.5% to 5% region over the first half of the year." Overall consumer spending doesn't appear to be slowing much because income growth is holding up Jones added and the Federal Reserve isn't likely to alter policy based on one CPI report. Chances of a rate pause this month approach 100%, according to the CME FedWatch tool, and odds of any cut in the first quarter are below one in three.

Today's December housing starts and building permits both easily exceeded analysts' expectations at seasonally adjusted annual rates of 1.499 million and 1.483 million, respectively. Analysts had expected a slight rise in starts to 1.318 million and a slight dip in permits to 1.45 million, according to Briefing.com. This suggests the housing market remains robust despite high rates and follows recent strength in home builder stocks after strong earnings from KB Home (KBH). Home builder D.R. Horton (DHI) reports next week.

Morning Rush

The 10-year U.S. Treasury yield (TNX) is pulling back to 4.59%.

The U.S. Dollar Index ($DXY) is up slightly to 109.02.

The CBOE Volatility Index^® (VIX) continues to fall to 15.71.

WTI Crude Oil (/CL) is falling slightly to $77.29.

Bitcoin (BTC) continues its rally, up another 3.7% to $104,520.

Source: Schwab Center for Financial Research

Today's Bullish Activity

Shares of Schlumberger Ltd. (SLB + $3.12 to $44.21) are up over 7.50% today, after the oilfield services company announced Q4 results that beat Wall Street expectations and announced plans to boost its dividend and accelerate its share buyback plan. For the quarter, Schlumberger generated EPS of $0.92, above expectations for $0.86, from revenues of $9.28 billion, also above expectations for $9.18 billion. Other highlights from the report included adjusted EBITDA that increased 4.6% y/y and adjusted EBITDA margin of 25.7%. Cash flow from operations of $2.39 billion was in-line while free cash flow of $1.63 billion missed the estimate of $1.69 billion.

The company's plans to boost its dividend and share buyback program amount to a quarterly cash dividend of $0.285 per share and an accelerated share repurchase of $2.3 billion. Many analysts applauded this move, including BMO Capital Markets who said, "The accelerated buyback plan is a positive given share price weakness and historically low valuation," and Benchmark who quipped, "Business remains well positioned to deliver further margin expansion and increased returns to shareholders."

Option trading in SLB currently stands at 55,432 contracts, 8x the daily average, with calls outpacing puts 4:1. Leading the way are the following trades, expirations, and strikes:

January 24th, 2025, 42.00 put accounted for 6,003 contracts; open interest is 68 contracts.
March 21st, 2025, 42.50 call accounted for 5,795 contracts; open interest is 14,687 contracts.
January 17th, 2025, 42.50 call accounted for 4,545 contracts; open interest is 17,129 contracts.

New 52-week highs (144 new highs today): Robinhood Markets Inc. (HOOD + $1.66 to $47.73), Cisco Systems Inc. (CSCO + $0.74 to $60.56), Kinder Morgan (KMI + $0.32 to $30.38), Baker Hughes Company (BKR + $0.78 to $47.11)

Notable Call Activity

Unusual call activity is noted today in Riovant Sciences Ltd. (ROIV + $0.23 to $11.12), as call volume currently stand at 33,226 contracts, 40x the average daily volume in early morning trading. Most of the activity stems from multiple large block call trades in the January 16th, 2026 expiration month. Traders are targeting the 15.00 call strike with massive purchases totaling over 32,800 contracts. Prices paid have ranged from $1.15 to $1.20, above the mid-market price, pushing up implied volatility over 10 points along the way. With open interest of only 3,678 contracts, we know these call buys represent new positions (suggesting bullish intent).

Other call activity of note can be seen today in KE Holdings Inc. (BEKE + $0.43 to $17.12), as call activity has spiked to 22,984 contracts in morning trading (7x daily average). Volume is strongest in the February 21st, 2025, expiration month and is being led by activity at the 19.00 and 20.00 strikes. Traders have primarily been on the sell side through multiple block trades totaling 9,700 contracts between the two strikes, with many of these transactions at or near the bid price. We know that most of these trades are new positions, given the collective open interest of 3,200 contracts between the two strikes (suggesting neutral to bearish intent).

Today's Bearish Activity

Shares of JB Hunt Transport Services Inc. (JBHT - $11.47 to $147.73) are down over 6% today, following news that transportation and logistics company's Q4 earnings missed expectations and that it warned about Q1 results, citing likely mounting cost pressures in 2025. JB Hunt reported Q4 EPS of $1.53 versus estimates of $1.63 driven by revenues of $3.15 billion, in line with estimates. Going forward, the company said it expects Q1 operating income to decline around 20% to 25% sequentially, as inflationary costs continue to rise in the areas of insurance premiums and people costs.

Option trading in JBHT currently stands at 7,354 contracts, 6x the daily average, with puts outpacing calls 3:1. Leading the way are the following trades, expirations, and strikes:

January 17th, 2025, 170.00 put accounted for 1,858 contracts; open interest is 561 contracts.
January 17th, 2025, 175.00 put accounted for 706 contracts; open interest is 552 contracts.
January 17th, 2025, 180.00 put accounted for 554 contracts; open interest is 986 contracts.

New 52-week lows (42 new lows today): Novo Nordisk (NVO - $3.56 to $79.51), Zentalis Pharmaceuticals Inc. (ZNTL - $0.17 to $2.23), TransMedics Group Inc. (TMDX - $1.23 to $56.79), Lucky Strike Entertainment Corp. (LUCK - $0.44 to $10.15)

Notable Put Activity

Some unusual put activity is noted today in Lithium Americas Corp. (LAC + $0.04 to $3.48). This activity equates to over 15,083 put contracts, 14x average daily put volume. Nearly all the activity can be attributed to a massive 11,764 contract block trade that occurred in the August 15th, 2025, expiration month. Traders sold the 2.00 put strike for a price of $0.20 when the bid/ask was $0.20 x $0.35. With only 16 contracts of open interest, this represents new, neutral to bullish, positioning. This transaction comes after the LAC price target was cut to $7.00 from $8.50 at Stifel. Shares of LAC are down over 50% from a 52-week high price of $7.71 set back in April.

Unusual put activity can also be seen in Fifth Third Bancorp (FITB + $0.40 to $43.67), as put volume stands at 7,066 contracts in morning trading, 8x average daily volume. Nearly all that volume can be attributed activity in the March 21st, 2025, expiration month where traders have sold 3,500 40.00 / 39.00 put vertical spreads. The put vertical spreads were sold for a price of $0.16, basically at a mid-market price. There was no open interest, so we know this represents new positioning (suggesting neutral to bullish intent). Shares of FITB have pulled back around 10% from a late-November high price of $49.07. FITB is expected to report earnings next Tuesday, January 21st, 2025.

Gauging Volatility

The Cboe Volatility Index (VIX - 0.89 to 15.71) has traded lower today, as equity markets are moving higher in morning trading (DJI + 490, SPX + 75, COMPX + 331). VIX movement has occurred within a narrow range today (the intraday range is 15.53 – 16.23). VIX option volume is elevated today, given its position as 6th on the "Top Volume by Underlying" list. The volume put/call ratio is currently 0.31, and the highest volume contract is the January 22nd, 2025, 18.00 call (volume is 160,895 vs. open interest of 237,300).

Investors should consider carefully information contained in the prospectus, or if available, the summary prospectus, including investment objectives, risks, charges, and expenses. You can request a prospectus by calling 800-435-4000. Please read the prospectus carefully before investing.

Options carry a high level of risk and are not suitable for all investors. Certain requirements must be met to trade options through Schwab. Please read the Options Disclosure Document titled "Characteristics and Risks of Standardized Options." before considering any option transaction. Call Schwab at 1-800-435-4000 for a current copy. Supporting documentation for any claims or statistical information is available upon request.

Futures and futures options trading involves substantial risk and is not suitable for all investors. Please read the Risk Disclosure Statement for Futures and Options prior to trading futures products.

The information provided here is for general informational purposes only and should not be considered an individualized recommendation or personalized investment advice. The investment strategies mentioned here may not be suitable for everyone. Each investor needs to review an investment strategy for his or her own particular situation before making any investment decision. All expressions of opinion are subject to change without notice in reaction to shifting market conditions. Data contained herein from third-party providers is obtained from what are considered reliable sources. However, its accuracy, completeness, or reliability cannot be guaranteed.

Investing involves risk including loss of principal.

All references to subjects (securities, indexes, futures contracts, and options contracts) were derived based on screens conducted by the writer for certain anomalous activity such as volumes, volatility and other related market data. As needed for brevity, the writer may have applied discretion when choosing among screen outputs for inclusion. Such discretion may have been based on news reports or other considerations of public interest. The views or opinions are those of the writer, and are subject to change without notice. All referenced subjects were chosen for illustrative purposes only and should not be considered recommendations, offers to sell, or solicitations of offers to purchase.

All corporate names and market data shown above are for illustrative purposes only and are not a recommendation, offer to sell, or a solicitation of an offer to buy any security.

Past performance is no guarantee of future results.

This information provided here is for general informational purposes only, and is not intended to be a substitute for specific individualized tax, legal, or investment planning advice. Where specific advice is necessary or appropriate, you should consult with a qualified tax advisor, CPA, Financial Planner, or Investment Manager.

Schwab does not recommend the use of technical analysis as a sole means of investment research.

Indexes are unmanaged, do not incur management fees, costs, and expenses and cannot be invested in directly. For more information on indexes please see schwab.com/indexdefinitions.

The Schwab Center for Financial Research is a division of Charles Schwab & Co., Inc.

0125-J4BH