Truckload of options

  • More than 20,000 KNX January $45 puts traded this week
  • Volume also heavy in November $35 puts
  • Options IV high with earnings due next week

It may not get as much attention as other stocks that will be reporting earnings next week, but Knight–Swift Transportation (KNX) has been one of the more conspicuous tickers in the options market so far this week.

The truck freight stock has appeared on several unusual options activity scans, especially for put volume. The options chains below show some of the most notable trades on Monday and Tuesday. While on Monday a hefty 1,800 contracts traded in the January $40 puts—a contract that already had open interest (OI) of more than 10,000 contracts—that volume was dwarfed by the 18,500 contracts that changed hands in the January $45 puts:

Chart 1: Knight-Swift Transportation (KNX) Jan. (top) and Nov. (bottom) options, 10/10/22–10/11/22. Knight-Swift Transportation (KNX) options chain. Large—and new—positions in OTM puts.

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

The big increase in the January $45 put’s OI on Tuesday confirmed that most of Monday’s volume consisted of a trader (or traders) getting into the market, not out of it. Also, by mid-morning on Tuesday, another 3,500 of the January $45 puts had traded, although it was impossible to know if this volume was also new trades or close-outs of existing positions (today’s OI should tell the tale).

Monday’s volume by itself was significant—it represented 1.85 million shares, in a stock with average daily volume of around 1.7 million—but it’s also true that the strike price is just a little below where the stock was trading on Monday and Tuesday (roughly $47.50–$49). Also, the trade took place in options expiring more than three months from now. In other words, despite its size, there was potentially no “immediacy” to the position. By contrast, someone buying a similar number of puts with a strike price much further below the stock price and expiring in just a few weeks could be more indicative of a large trader expecting a significant near-term price move.

The bottom half of the options chain shows there was, in fact, some notable activity (although not on the same scale as the January $45 puts) in the November $35 and $30 puts. These trades also appeared to be new positions, since the OI in both increased from Monday to Tuesday.

The following KNX chart shows the stock zigzagging the past few weeks after pulling back from its August highs. The bottom portion shows implied volatility (IV) is well above historical volatility (HV), which means the options market is expecting more volatility in the stock than has occurred recently:

Chart 2: Knight-Swift Transportation (KNX), 5/16/22–10/11/22. Knight-Swift Transportation (KNX) price chart. Choppy trading as earnings approach.

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

That makes sense, since a potential volatility catalyst—earnings—is just a week away.

Market Mover Update: The S&P 500 (SPX) fell to a new year-to-date intraday low on Tuesday, but it closed slightly higher than it did on September 30, thus avoiding a new low close for the year. But when the SPX was at its intraday low yesterday, the Cboe Volatility Index (VIX) was higher than it was when the SPX was hitting its September 30 intraday low, suggesting the VIX was anticipating more volatility at yesterday’s low than it was at September 30’s low. The VIX also closed higher yesterday than it did on September 30 (see “VIX tracks market’s pulse”).

Today’s numbers include (all times ET): Mortgage applications (7 a.m.), Producer Price Index, PPI (8:30 a.m.), Atlanta Fed Business Inflation Expectations (10 a.m.), FOMC minutes (2 p.m.).

Today’s earnings include: Duck Creek Technologies (DCT).


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