Options in play as stock tests resistance

Even if they don’t trade them, longtime stock traders know that keeping tabs on the options market can tip them off to potential developments that may otherwise slip beneath their radar.

For example, in addition to landing on Wednesday’s LiveAction scan for high put-call ratios, Crown Castle (CCI) was toward the top of the unusual put options volume scan, with 12,200 October $100 puts changing hands—nearly 30 times the average daily volume for all of its options:

That volume, many traders likely noticed, was just a bit more than the open interest (OI) of 11,900. Since there’s a one-day lag in OI data, it was impossible to know whether a large trader was, perhaps, building an even bigger position or liquidating an existing one. (Almost all of the day’s volume consisted of one large transaction in the first 10 minutes of the trading session.)

While today’s OI total should help clarify that point, CCI’s price chart provides an interesting backdrop for Wednesday’s activity. The stock is up more than 12% since breaking out above its May-June highs in mid-July—a period during which the  S&P 500 has lost ground. On Wednesday, CCI was still roughly 20% above the $100 strike price despite pulling back after Tuesday’s new year-to-date high.

But as the monthly chart inset at the upper left shows, the current rally is part of a larger move off the nearly eight-year low the stock hit last October, which occurred after a nearly two-year correction:

The monthly chart also shows CCI is testing potential resistance at its December highs. If today’s OI in the October $100 puts is higher than yesterday’s, it could mean a large trader was buying more puts in anticipation of a down move in the stock. If the OI is lower, it could mean the trader was scaling back on a bearish position in expectation of more upside.

As always, though, there are two sides to every trade. If a large trader did, in fact, initiate yesterday’s activity, the traders on the opposite side of the transaction may have a different—and equally valid—outlook. Bottom line, unusual options activity can signal interest in a stock, even if the implications of that interest are difficult to decipher in real time.

Today’s numbers include (all times ET): Producer Price Index (8:30 a.m.), weekly jobless claims (8:30 a.m.).

Today’s earnings include: Kroger (KR), Adobe (ADBE).

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