Big trades, big decisions

  • AVTR up more than 6% intraday on Tuesday
  • Relative put volume was the day’s heaviest
  • Stock rallied more than 30% before pulling back

A little more than three weeks before it’s scheduled to release earnings, specialty chemicals stock Avantor (AVTR) was much more active than any of the big banks that will be releasing their numbers over the next week or so.

Reversing a pullback that followed a 30%-plus rally off its late-October lows, AVTR rallied more than 6% intraday on Tuesday before closing with a smaller gain:

Chart 1: Avantor (AVTR), 10/20/23–1/9/24. Reversing a pullback.

Source: Power E*TRADE (For illustration purposes. Not a recommendation.)

But the options side of the equation appeared to be out of sync with this price action. Traders expecting heavy call volume may have raised an eyebrow to see AVTR with one of the day’s highest put-call ratios, and on top of the scan for heavy call volume:

Chart 2: Avantor (AVTR), 9/14/23–1/9/24. Put volume 13 times average.

Source: Power E*TRADE (For illustration purposes. Not a recommendation.)

Approximately 95% of that volume occurred in one contract—the February $19 puts. And with open interest of only 194 contracts, it suggested traders were likely establishing new positions:

Chart 3: Avantor (AVTR) February puts. 16,500 contracts in OTM puts

Source: Power E*TRADE (For illustration purposes. Not a recommendation.)

As is always the case with any trade (or day of trading), it’s a mistake to jump to conclusions about what it represents. Some traders may look at this position and assume it meant a large trader established a bearish position in out-of-the-money puts (the stock traded between $21.50–$23 on Tuesday). That could be true, but it begs the question, why would that occur on a day the stock was conspicuously higher?

Also, what about the other side of the trade? It would be just as valid to assume the position was a result of a trader or traders shorting these puts because they believed the stock would be above $19 at expiration, in which case they’d keep the roughly $247,500 in collected premium.

Or, perhaps a large trader or institution with a position in the stock bought the puts as an “insurance policy” to protect against possible volatility—not an unreasonable expectation with earnings approaching.

These aren’t the only possible scenarios, but they highlight why it can be a mistake to read too much into a “big trade,” no matter how compelling it may appear—especially since today’s (or tomorrow’s) activity may cast yesterday’s trades in a whole new light.

And with earnings season about to begin, there will likely be no shortage of big options trades.

Today’s numbers include (all times ET): Mortgage Applications (7 a.m.), preliminary Wholesale Inventories (10 a.m.), EIA Petroleum Status Report (10:30 a.m.).

Today’s earnings include: KB Home (KBH).


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