Options positions highlight breakout story
- ROK up 38% since late June, 12% since early Nov.
- Pullback to breakout level followed by rally, heavy call volume
- Call–put balance differs in Dec. and Jan. options
Many stock traders rarely (or never) consult options data in their analysis, but recent activity in industrial automation company Rockwell Automation (ROK) underscores the important context options positioning can sometimes provide.
Although ROK has lagged the S&P 500 (SPX) by roughly seven percentage points in 2022, most of that underperformance occurred in the first half of the year. While the SPX hit its year-to-date low just a little more than a month ago, ROK has been winding its way higher since late June, and has outperformed the SPX by more than 30 percentage points (+38% to +7%) since then:
Source: Power E*TRADE. (For illustrative purposes. Not a recommendation.)
The stock mirrored the broad market retreat last week, but ROK’s pullback highlighted a potentially important move from the previous week: Shares jumped more than 5% on November 10, breaking out above the August–October highs and climbing to their highest level since April over the next two days. The stock dropped below the breakout level last Thursday (one day after news the company had inked a contract to be the primary “controls and solutions” provider for Ford’s next three electric vehicle assembly sites1), but climbed back above it on Friday.
Meanwhile, ROK appeared on Friday’s LiveAction scan for unusual call volume, with 1,800 January $280 calls changing hands—something that may have appeared to align with a successful test of a recent breakout level. But a closer look at ROK’s open interest (OI) on Monday revealed some interesting differences between the positions in December and January options:
Source (data): Power E*TRADE. (For illustrative purposes. Not a recommendation.)
First, some similarities: Calls outnumbered puts in both expirations, and the majority of positions were in out-of-the-money (OTM) options in all cases.
But while there were more than twice as many December call positions as put positions (4,715 vs. 2,284), OI was much more evenly matched in January (2,871 vs. 2,647). While there are two sides to every trade, the majority of traders nonetheless buy calls to take bullish positions and buy puts to take bearish positions. That could mean traders were taking more bullish positions in December options than in January options.
Positions can change dramatically from one day to the next, but as of yesterday, one way to interpret the balance of ROK calls and puts was that traders may have been a little more bullish about the stock’s performance through December options expiration than after it.
Market Mover Update: January WTI crude oil futures (CLF3) followed up on last week’s decline by selling off 6% intraday on Monday to hit a two-month low of $75.27/barrel. But the market erased almost the entire loss by the end of the day, closing down less than 0.5%.
Today’s earnings include: Analog Devices (ADI), Best Buy (BBY), Burlington Stores (BURL), Dick's Sporting Goods (DKS), Dollar Tree (DLTR), HP (HPQ), VMware (VMW), Nordstrom (JWN), Medtronic (MDT), Dycom (DY), Guess (GES).
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1 Milwaukee Business Journal. Rockwell Automation lands Ford as latest major electric vehicle contract. 11/16/22.