Today's Options Market Update

A day after artificial intelligence-related news recharged the tech sector, investors await this afternoon's earnings from chipmaker Nvidia (NVDA), one of the biggest players in AI. Expectations are robust and Nvidia shares trade near their all-time highs.

While Nvidia potentially hogs the spotlight, it's not the only company opening the books today. Several large retailers have also reported, including Lowe's (LOW), Kohl's (KSS), Dick's Sporting Goods (DKS), Best Buy (BBY), and Nordstrom (JWN). Minutes from the last Federal Reserve meeting are due at 2 p.m. ET, even as the futures market pencils in no probability of further rate hikes and nearly 30% chances of a first rate cut at the March Fed meeting.

Think of today as the storm before the holiday calm. Of course, Deere (DE) is on deck first thing Wednesday, along with weekly Initial Jobless Claims, meaning tomorrow starts out busy, too. Stocks fell slightly in premarket trading, but the S&P 500® Index (SPX) enjoyed its best close since August on Monday and the Nasdaq 100 (NDX) settled at a 22-month high.

Technology shares were particularly firm Monday, with Microsoft (MSFT) up over 2% to a record high after CEO Satya Nadella said former OpenAI chief Sam Altman will be joining his company to lead a new artificial intelligence (AI) research team. It's still unclear where the chips might fall, pardon the expression, but on the surface, potentially this appears to be a big opportunity for Microsoft to bolster its position in AI. On the other hand, any disruption could delay progress on new developments, potentially opening the door for AI competitors like Alphabet (GOOGL) and Amazon (AMZN) to gain ground.

Major indexes, including small caps, also got a boost from Treasuries on Monday after yields dipped again on decent demand for a 20-year Treasury note auction.

"Usually the 20-year isn't too meaningful since it was only re-introduced a few years ago, and 10- and 30-year Treasuries tend to be more liquid than the 20-year," says Collin Martin, a director of fixed income strategy at Schwab. "That being said, the relatively strong auction was a good sign for those worried that rising Treasury supply may be difficult for the market to absorb."

The 10-year Treasury note yield ($TNX) is higher by ~2 basis points to 4.461%. The U.S. Dollar Index ($DXY) is lower by 0.12 to 103.32. The Cboe Volatility Index® ($VIX) has been on both sides of the unchanged line today and was last seen lower by 0.18 at 13.62. WTI Crude Oil (/CL) is lower by 0.59% today to $77.37 per barrel. Gold prices have traded in a range of $1,999.90 to $2,030.00 and were last seen trading higher by 1.39% to $2,082.20. Natural Gas prices have traded in a range of $2.855-2.921 so far today and were last seen trading higher by 0.14% to $2.886/MMBtu.

Source: Schwab Center for Financial Research

Shares of Burlington Stores Inc. (BURL + $29.33 to $166.04) are trading at a two-month high this morning after the retailer reported Q3 earnings of $0.98 per share, excluding non-recurring items ($0.01 beat) on revenue that rose 12.4% year-over-year to $2.29B (in-line with estimates) as comparable same-store sales increased 6% year-over-year. Looking ahead, the company said that Q4 EPS is expected to come in a range of $3.04-3.19 on revenue of $2.88-2.93B, which is below the respective $3.21 and $3.03B consensus estimates. Calls are outnumbering puts ~3:2 with the January 2024 145.00 put being the highest volume contract (volume is 2,003). If you read yesterday's blog, you might recall that BURL was highlighted under the "Volume Signals" section for a 2,737 x 2,737 contract bull call spread that was established using the November 24^th 150.00 & 170.00 call strikes.

Also trading to the upside this morning is Dick's Sporting Goods Inc. (DKS + $8.99 to $128.00) after the retailer reported Q3 earnings of $2.85 per share ($0.40 beat) on revenue that rose 2.8% year-over-year to $3.04B (above the $2.94B expected). Additionally, the company raised full-year 2024 (FY24) EPS guidance to a range of $12.00-12.60 (from $11.50-12.30) and FY24 comparable same-store sales growth to a range of +0.5-2.0% (from 0.00-2.0%). Calls are outnumbering puts ~2:1 with the November 24^th 130.00 call being the highest volume contract (volume is 1,547).

New 52-week highs (56 new highs today): Chipotle Mexican Grill Inc. (CMG + $11.07 to $2,197.76), ServiceNow Inc. (NOW - $0.33 to $666.59), Visa Inc. (V + $1.75 to $251.72)

Some unusual call activity (~11:1 over puts) is being seen in PPG Industries Inc. (PPG + $1.20 to $136.76) as option traders primarily target the June 2024 170.00 call. Volume on this contract is 1,183 versus open interest of 5, so it's likely that nearly all of the volume represents fresh positioning. The bulk of the transactions consisted of various mid-sized blocks that were being bought around the same time at the ask price of $1.05 each, which suggests bullish intent.

Moving lower this morning is Abercrombie & Fitch Co. (ANF - $5.09 to $67.20) after the retailer beat quarterly estimates but provided lackluster guidance earlier this morning. The company reported Q3 earnings of $1.83 per share ($0.65 beat) on revenue that rose 20.0% year-over-year to $1.06B (above the $981M expected). Regarding guidance the company said that Q4 revenue is expected to be up "low double digits" versus the +11.6% to $1.34B expectation from analysts. Calls are outnumbering puts ~2:1 with the December 15^th 80.00 call being the highest volume contract (volume is 1,974).

Also trading to the downside this morning is Best Buy Co., Inc. (BBY - $2.39 to $65.71) after the electronic retailer reported Q3 earnings of $1.29 per share, excluding non-recurring items ($0.10 beat) on revenue that fell 7.8% year-over-year to $9.76B (below the $9.9B consensus item). The company also lowered FY24 EPS guidance to a range of $6.00-6.30 (from $6.00-6.40) and FY24 revenue guidance to a range of $43.1-43.7B (from $43.8-44.5B). Calls are slightly outnumbering puts, but the November 24^th 64.00 put is leading the way (volume is 1,244).

New 52-week lows (49 new lows today): MGP Ingredients Inc. (MGPI - $0.77 to $91.01), Novavax Inc. (NVAX - $0.15 to $5.55), Vroom Inc. (VRM - $0.02 to $0.72)

Some unusual put activity (~9:1 over calls) is being seen in the WisdomTree Cloud Computing Fund (WCLD - $0.54 to $30.15) which is primarily being driven by a couple of fairly large blocks (526, 500) that were bought on the December 15^th 29.00 put at the ask price of $0.25 (open interest is 144). We know that both of these blocks are new positions given the open interest figure and we can assume that the intent is bearish in nature since the trades took place at the ask price.

Ero Copper Corp. (ERO - $0.31 to $135.69): Option volume is running at over 8x the daily average on this copper miner which is primarily being driven by a couple of large blocks that were seen simultaneously trading on the December 15^th expiration earlier this morning:

• 12.50 call (open interest is 610): A 2,500 contract block traded for $0.70 when the bid/ask spread was $0.25 x $0.90.
• 15.00 call (open interest is 629): A 2,500 contract block was sold for $0.05 when the bid/ask spread was $0.00 x $0.15.

We know that both of these blocks are new positions based on the respective open interest figures and it appears that a $2.50-wide bull call spread was established for a net debit of $0.65 (x 2,500 contracts x 100 multiplier, excluding commissions). The positioning suggests that the block trader believes that ERO will close above the break-even price of $13.15 at expiration.

American Eagle Outfitters Inc. (AEO - $3.41 to $16.34): Option volume is running at ~2x the daily average on this retailer which is primarily being driven by activity on the November 24^th 16.50 call. Volume on this contract is 2,414 versus open interest of 2, so it's likely that nearly all of the volume represents fresh positioning. The bulk of the activity consisted of various-sized blocks that were being bought at various times for between $0.32-0.60 each, which suggests bullish intent. 

Nordstrom Inc. (JWN - $0.48 to $14.69): A couple of large blocks were seen simultaneously trading on this retailer on the December 1^st expiration earlier this morning:

• 13.50 put (open interest is 366): A 6,125 contract block was bought at the ask price of $0.54.
• 11.50 put (open interest is 211): A 6,125 contract block traded for $0.10, directly in the middle of the $0.09 x $0.11 bid/ask spread.

We know that both of these blocks are new positions based on the respective open interest figures and it appears (since the trade on the 13.50 put took place at the ask price) that a $2.00-wide bear put spread was established for a net debit of $0.44 (x 6,125 contracts x 100 multiplier, excluding commissions). The positioning suggests that the block trader believes that JWN will close below the break-even price of $13.06 at expiration. The spread appears to be an "earnings play" as JWN is scheduled to report Q3 earnings today after the bell.

The Cboe Volatility Index (VIX - 0.02 to 13.39) has been on both sides of the unchanged line today (the intraday range is 13.37-14.31) as equity markets are lower across the board around the mid-day mark (DJI - 81, SPX - 15, COMPX - 116). VIX option volume has been below average today as the index is currently missing from the “Top Volume by Underlying” list. The volume put/call ratio is currently 0.40 with the highest volume contract being the February 14^th 55.00 call (volume is 15,878 vs. open interest of 148,150).