Calls rock, but puts roll

08/02/22
  • OTIS up more than 9% in six days after testing support
  • Options volume was exceptionally high on Monday
  • Puts more heavily traded despite high-profile call volume

It can’t be said enough: In the markets, first impressions can be a dangerous guide to action.

Yesterday, traders who saw Otis Worldwide (OTIS) at the top of the LiveAction scan for unusual call options volume may have looked around for some indication of why bulls were taking interest in the elevator and escalator manufacturer. With options volume more than nine times average, the stock was up more than 1% in early trading:

Chart 1: LiveAction scans: Call volume (top) and put volume (bottom).

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


But as the bottom half shows of this screen shows, OTIS also appeared on the unusual put volume scan. It only placed third on this list, but its put volume was more than 23 times average—and more than twice as much as the call volume (43,006 vs. 17,893).

While that would seem to dilute the initially bullish impression, there were still other factors to consider. Yesterday’s high-volume contracts also had even higher open interest (OI), which means at least some of the activity could have been traders getting out of positions rather than into them.

Also, most of the volume consisted of similarly sized trades at slightly different strike prices in different contract months. For example, nearly 12,000 of the August $60 puts and 9,500 of the August $70 puts changed hands, but there was also volume of 12,600 and 9,000 in the January $65 and $75 puts, respectively—meaning, a large trader may have been “rolling” existing positions to a more-distant expiration.

And what about the stock? The price chart shows OTIS has rallied sharply since testing two nearly identical technical levels—the breakout point of its November 2020–March 2021 consolidation and the 50% retracement of its April 2020–August 2021 rally (shorter dashed line):

Chart 2: Otis Worldwide (OTIS), 4/3/20–8/1/22 Sharp rally off retracement level.

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


The stock has gained nearly 15% since July 13 and more than 9% over just the past six trading days—its biggest such move since April 2021. A major portion of the upswing came after OTIS released its quarterly numbers on July 27, topping headline earnings, coming up a little short on revenues, and offering full-year forward guidance a bit below expectations.1 Also, as of yesterday the stock had slightly overshot its average Street analyst price target of $78.2

Today’s OI totals should shed more light on whether traders were getting into, out of, or simply adjusting their positions in time. Yesterday’s action certainly suggested traders were involved in the stock, but those who drew conclusions too early may not have gotten the full picture.

Today’s numbers include (all times ET): Job Openings and Labor Turnover Survey (10 a.m.), Vehicle Sales.

Today’s earnings include: Uber (UBER), Airbnb (ABNB), BP (BP), Caterpillar (CAT), Harmony Biosciences (HRMY), International Game Technology (IGT), Marathon Petroleum (MPC), Sage Therapeutics (SAGE), Molson Coors (TAP).

 

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1 StreetInsider.com. Otis Worldwide (OTIS) Tops Q2 EPS by 7c; Offers FY22 Guidance. 7/27/22.
2 TipRanks.com. Otis Worldwide Stock Forecast & Price Targets. 8/1/22.

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