That was one heck of a reversal this morning in the S&P 500 (SPX), right off that little uptrend from the two prior lows:
I suspect the question on most traders’ minds is how far can the bounce go? I suspect we get a pause in the coming days at 1950, but 2000 could definitely be in the offing if we start to get some earnings reports like JPM’s this morning that don’t provide additional reasons for further selling off of a very oversold condition.
With the market firming up a bit today, there seemed to be a handful of trades in the options market that seem to position for a near term reversal in some beaten up stocks. Here was some directional untied options activity that caught my eye:
-MCD: The company reports earnings on Jan 25th prior to the open of the market. Shortly after the open when the stock was at $113.92, a trader sold to close 10,000 Jan16 115 calls at .60 cents and bought to open 10,000 Jan29th weekly expiration 117 calls for 2.03. This was a bullish roll up and out two weeks obviously to catch earnings. The stock has traded in a $4 range today, which is quite surprising for a stock that has essentially inched its way higher since breaking out to new all time highs back in October. We currently have an options trade that is playing for a pull back to the breakout level down at $110 (read here):
-FDX: with the stock down 12% on the year trading at $132, a trader paid $1.67 to buy 5,000 of the Feb 140 calls to open. These calls break-even at $141.67, up about 7.5% in a little more than a month. What’s interesting about the choice of Feb expiration is that it will not catch earnings as the company is scheduled to report fiscal Q3 earnings on March 16th, but competitor UPS is scheduled to report on February 2nd. I would add that the choice of strikes is also interesting as it is at the recent breakdown level:
-BX: wow this one has had a 10% intra-day reversal. When the stock was $24.38 a trader paid 25 cents for 45,000 March 30 calls to open. These calls break-even in 2 months at $30.25, up almost 20% from the trading level, and have only a 12 delta, which the options market is saying has a less than 12% chance of being in the money on March expiration. BX reports Q4 results on Jan 28th. Much like FDX above, the call strike matches the prior break-down level:
-TWTR: on a day that the stock made a fresh low, one trader cried uncle, selling to close 125,000 of the Jan 2017 35 calls at 76 cents when the stock was $18.74. These options only have an 18 delta, less than an 18% chance of being in the money in a year, and that’s because there’s a lot of time left in them. At this point the only conceivable way the stock could be in the mid $30s is some sort of strategic partnership that dramatically accelerated user growth, or a flat out take-out. I am back in the stock (read here).
-XOM and on day when the stock is ripping, up 5%, one trader is looking the other way, rolling up what could be a hedge when the stock was $79.73, selling to close 10,000 March 70 puts at 1.13 and buying to open 10,000 March 75 puts for 2.18. XOM reports earnings Feb 2nd before the open.