Bulls vs. bears: One-week trade
- GNRC calls still in play day after high call-put ratio
- Trading heaviest in OTM calls nearing expiration
- Shares consolidating after post-earnings decline
When Generac (GNRC) appeared on Wednesday’s LiveAction scan for high call-put ratios, it was unclear if traders were getting into positions or getting out of them.
That question got an answer on Thursday. With the industrial stock trading mostly between $137-$143 on Wednesday, open interest (OI) in the August $150 calls was 2,500, roughly the same as the contract’s volume halfway through the day. Yesterday, OI stood at 4,200 contracts, which means most of Wednesday’s trades represented new positions:
Source (data): Power E*TRADE. (For illustrative purposes. Not a recommendation. Note: It is not possible to invest directly in an index.)
The options chain also shows another 1,200 of the calls traded by 11 a.m. on Thursday, a total that increased later in the day. Regardless of whether this volume raises or lowers the OI total in the $150 calls (which we’ll find out today), some traders may have paid special attention to this activity, since it unfolded a little more than a week before the August 16 options expiration.
While the most common reaction to heavier-than-average call volume is that it may signal bullish sentiment, there are two sides to every trade—a seller for every buyer. Thursday’s OI in the $150 calls represented $63 million of GNRC shares, which suggests traders clearly had a significant stake in the stock either making or avoiding a significant move in the next week: On August 16 the options will expire worthless unless GNRC rallies more than 7% above its levels from Thursday.
On July 31, GNRC tagged its highest price since October 2022 after announcing earnings, but shares reversed to close low in the day’s range, then followed through to the downside for two more days before stabilizing a bit:
Source (data): Power E*TRADE. (For illustrative purposes. Not a recommendation. Note: It is not possible to invest directly in an index.)
The bottom portion of the chart shows the historical volatility (HV) increase that tracked the stock post-earnings sell-off. Also, options implied volatility (IV) bumped to multi-month highs earlier in the week, something that could have possibly increased options premiums (making them more attractive to sellers), or at least kept them from falling as much as they may have otherwise because of accelerated time decay.
In a week, perhaps less, we’ll know whether this week’s options buyers or sellers were on the right side of the market.
Today’s earnings include: Ideaya Biosciences (IDYA), Disc Medicine (IRON).
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