Today's Options Market Update

First Helping: Nvidia's Earnings Loom After Close

November 20, 2024 Joe Mazzola

With Thanksgiving ahead, the market has lots on its plate. Nvidia reports later and Federal Reserve speakers and a bond auction are appetizers. Target plunged as results, outlook disappointed.

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The waiting game is on for earnings from Nvidia (NVDA) later today, and major indexes inched up in the early going.

"Nvidia's earnings are this week's key drive as AI's contribution to earnings growth and future productivity remain a pillar in the bull thesis," said Nathan Peterson, director of derivatives analysis at the Schwab Center for Financial Research. "However, chips as a sector have been trading sideways-to-down over the past four months, which reiterates that Nvidia is really in a class of its own within AI."

Though Nvidia's results carry lots of weight with investors, the main focus will likely be on revenue guidance for the current quarter, with some whisper numbers running well above the average analyst estimate of around $37 billion. Even that's a pretty high bar compared to the $33.1 billion analysts expect for Nvidia's quarter that ended in October.

Especially considering circumstances. It's a transitional period for the company as Nvidia moves customers toward its new Blackwell chips. This could affect guidance for the current quarter and put more emphasis on what Nvidia expects for the quarters beyond that.

If Nvidia weren't reporting later, Target (TGT) and its 18% pre-market plunge might grab all the headlines. The retailer missed the bullseye, coming in lighter than expected on revenue and earnings per share versus Wall Street's average estimates.

Yesterday's quick but painful dip on Ukraine worries reminded investors that geopolitical risk hasn't vanished. It's not certain how much risk premium the market needs to build based on the newest developments in this war, which began nearly three years ago.

For the moment, market participants appear to feel more sanguine about the conflict, as Treasury yields popped back this morning after slipping yesterday on so-called "safe haven" trading. Treasuries, which move the opposite way of yields, often attract buyers in times of geopolitical uncertainty.

Morning Rush

The 10-year U.S. Treasury yield (TNX) climbed five basis points to 4.43%.

The U.S. Dollar Index ($DXY) rose slightly to 106.57.

The CBOE Volatility Index^® (VIX) is up to 18.05.

WTI Crude Oil (/CL) rose 0.7% to $69.85 per barrel.

Bitcoin (BTC) climbed 1.6% to $94,423.

Source: Schwab Center for Financial Research

Today's Bullish Activity

Shares of Williams-Sonoma Inc. (WSM + $40.85 to $178.09) are up a whopping 29% today, after the specialty retailer posted better-than-expected results in its latest quarter and boosted its outlook for the year ahead. The company announced its recent Q3 earnings came in at $249 million, or $1.96 a share. This was up from $237.3 million, or $1.83 a share, a year earlier. Revenue was down slightly to $1.8 billion from $1.85 billion. Analysts polled had expected EPS of $1.77 off revenues of $1.78 billion.

Going forward, Williams-Sonoma adjusted its remaining 2024 outlook, as it sees revenue declining between 1.5% and 3% compared to a prior forecast of a decline between 1.5% and 4%. The company now expects operating margins between 18.4% and 18.8% versus prior guidance in the range of 18% and 18.4%.

Option trading in WSM currently stands at 19,231 contracts, 6x the daily average, with calls outpacing puts nearly 1.5:1. Leading the way are the following trades, expirations, and strikes:

December 20th, 2024, 200.00 call accounted for 4,533 contracts; open interest is 742 contracts.
December 20th, 2024, 140.00 put accounted for 1,366 contracts; open interest is 2,358 contracts.
December 20th, 2024, 120.00 put accounted for 1,184 contracts; open interest is 1,487 contracts.

New 52-week highs (142 new highs today): Grab Holding Ltd. (GRAB + $0.05 to $5.52), MicroStrategy (MSTR + $61.70 to $491.90), Sofi Technologies Inc. (SOFI + $0.13 to $14.55), IonQ Inc. (IONQ + $0.34 to $28.23), Zim Integrated Shipping (ZIM + $2.21 to $28.99)

Notable Call Activity

Unusual call activity is noted today in Red Cat Holding Inc. (RCAT + $2.04 to $6.78), as call contracts currently stand at 10,904, 4x the average daily volume, as shares are rocketing higher 43% in early morning trading. This comes on the heels of an announcement that the drone manufacturer had been selected as the winner of the U.S. Army's Short Range Reconnaissance (SRR) Program of Record. While option volume is elevated in most of the expiration months, it is the December 20th, 2024 expiration that is leading the way with heavy activity at the 5.00, 6.00, 7.00, and 8.00 call strikes. Those four strikes are responsible for ~75% of today's volume. Trading has been both ways, a mixture of buys and sells. That is not uncommon when you see a move of this magnitude. Activity increases, and multiple strikes come into focus.

Other call activity of note can be seen today in MetLife Inc. (MET + $0.04 to $82.67), as call activity has spiked to 21,293 contracts in morning trading (20x daily average). Most of this volume can be attributed to an Iron Condor call spread that occurred in the February 21st, 2025, expiration month. Traders bought the 87.50 and 95.00 strike calls and sold the 90.00 and 92.50 a total 7,000 times. Short Iron Condor call spreads benefit from the stock reaching and remaining within a certain range. In this instance, traders may be expecting MET to rally above the 87.50 strike and settle somewhere in between 90.00 and 92.50 at expiration. This would be the most profitable outcome for this strategy. We know this is a new position given the collective open interest was 240 contracts between the four strikes coming into today (suggesting slightly bullish intent).

Today's Bearish Activity

Shares of Qualcomm Inc. (QCOM - $10.22 to $154.48) are down over 6% today, the biggest drop in six months, after the chipmaker's CEO, Cristiano Amon, made comments at an investor presentation yesterday outlining a strategy shift amidst a loss of one of its largest customers, Apple, and flattening revenue growth. Qualcomm is the world's biggest seller of smartphone processors and major supplier for the Apple iPhone. After Apple announced it would be building more of its processing chips in-house, the writing was on the wall for Qualcomm to adjust its product mix which is what the company is trying to accomplish.

During the conference, Qualcomm announced its growth targets for new product categories, including automotive parts and chips for connected devices and personal computers. Per Bloomberg, Qualcomm expects these new areas to generate an additional $22 billion in annual revenue by fiscal 2029, with the broader Internet of Things (IoT) category generating $14 billion and the automotive chips generating $8 billion a year by that time.

Option trading in QCOM currently stands at 88,955 contracts, 4x the daily average. Leading the way are the following trades, expirations, and strikes:

November 22nd, 2024, 145.00 put accounted for 4,161 contracts; open interest is 4,120 contracts.
November 29th, 2024, 140.00 put accounted for 4,144 contracts; open interest is 161 contracts.
November 22nd, 2024, 165.00 call accounted for 4,017 contracts; open interest is 3,685 contracts.

New 52-week lows (190 new lows today): Target Corp. (TGT - $33.97 to $122.05), Tilray Brands Inc. (TLRY - $0.03 to $1.28), Walgreens Boots Alliance (WBA - $0.11 to $8.18), Wolfspeed Inc. (WOLF - $0.02 to $6.42), Dollar General Corp. (DG - $3.50 to $73.00)

Notable Put Activity

Some unusual put activity is noted today in CNH Industrial (CNH + $0.24 to $11.32). This activity equates to over 5,338 put contracts, 26x average daily put volume. Most of the activity has occurred in the December 20th, 2024, expiration month where traders bought over 5,000 puts on the 12.50 strike. A large block order for 4,882 contracts was purchased at a price of $1.34 when the bid/ask was $1.30 x $1.35. This was a new position, give the open interest of 79 contracts (suggesting bearish intent). Shares of CNH had recovered the post-earnings sell-off that took its price down to $10.00 last week. Perhaps these traders are assuming a re-test of that lower level may be on the horizon.

Unusual put activity can also be seen in Paychex Inc. (PAYX + $0.52 to $141.18), as put volume stands at 11,747 contracts in morning trading, 35x average daily volume. Much of this volume can be attributed to block trades in the December 20th, 2024, expiration month where traders are selling the 140.00 strike puts. Traders have sold over 6,900 contracts already at prices ranging from $3.00 to $3.10, all near or at the bid price. There were 4,937 contracts of open interest coming into today, so this could represent new positioning or adding to current shorts on the strike. Either way, this suggests neutral to bullish intent.

Gauging Volatility

The Cboe Volatility Index (VIX + 1.70 to 18.05) has traded on both sides of the unchanged line today, as equity markets are lower in morning trading (DJI - 73, SPX - 29, COMPX - 134). VIX movement has occurred within a fairly wide range today (the intraday range is 16.04 – 18.79). VIX option volume is elevated today, given its position as 7th on the "Top Volume by Underlying" list. The volume put/call ratio is currently 0.35, and the highest volume contract is the January 21st, 2025, 50.00 call (volume is 91,526 vs. open interest of 176,500).

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