In-and-out options
- DVA down after earnings, still up for year
- One put option trade stood out
- Activity mostly a short-term earnings play?
DaVita (DVA) sold off on Wednesday after releasing earnings that (handily) topped earnings and revenue estimates, but appeared to disappoint the Street with its forward guidance.
DVA’s 19% downdraft stood in stark contrast to the rallies that followed its two previous earnings announcements, which were pivotal to the dialysis provider’s 118% climb off its January low to the intraday record high it hit Monday:
Source: Power E*TRADE. (For illustrative purposes. Not a recommendation.)
The stock’s drop was, understandably, accompanied by a spike in options activity. LiveAction scans showed put volume was more than 17 times average around midday—which many traders would expect, given the direction the stock took. However, call volume was more than 36 times average.
But there was a common theme running throughout some of the most heavily traded options, puts and calls—volume was less than the open interest (OI), which means a traders could have been getting out of existing positions rather than establishing new ones. For example, 2,200 contracts traded in both the August $250 and $260 calls, which had OI of 2,500 and 2,300, respectively.
Similarly, 3,400 contracts traded in the October $210 puts, which had OI of around 3,500 on Wednesday. What made this trade especially interesting was the fact that the 3,500-contract position was established just one day earlier—on Tuesday, before the company’s after-hours earnings announcement:
Source: Power E*TRADE Pro. (For illustrative purposes. Not a recommendation.)
If today’s OI in this contract is higher than it was on Wednesday, it could mean a trader was adding to the position—which some observers may consider a potentially bearish development. But if OI is lower, it suggests the trader may have been liquidating at least some of the position. That would make sense if the buyer initiated the trade—and specifically did so to take advantage of a potential earnings sell-off—then watched the options nearly triple in value on Wednesday.
Another possible implication of that scenario is that it suggests the trader didn’t anticipate enough additional downside in the stock to make it worthwhile to hold on to at least some of the position.
Today’s numbers include: Challenger Job-Cut Report (5:30 a.m.), Jobless Claims (8:30 a.m.), Productivity and Labor Costs (8:30 a.m.), EIA Natural Gas Report (10:30 a.m.).
Today’s earnings include: ConocoPhillips (COP), Dropbox (DBX), Datadog (DDOG), Keurig Dr. Pepper (KDP), MP Materials (MP), Cloudflare (NET), Ralph Lauren (RL), Molson Coors Beverage (TAP).
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