Puts in play with numbers on the way

07/26/22
  • LNTH up more than 140% YTD, earnings due next week
  • Unusual options activity on Monday—heavy put volume
  • Limited-horizon spread position?

Many traders pay extra attention to options activity during earnings season because it can sometimes reveal potential sentiment shifts that aren’t immediately apparent in a stock’s price.

Yesterday morning, for example, medical diagnostics company Lantheus Holdings (LNTH) appeared on the LiveAction scan for unusual put options activity. Volume was around 12 times its daily average, with two contracts, the August $70 and August $60 puts, accounting for most of that activity:

Chart 1: Lantheus Holdings (LNTH) August put options, 7/25/22. High volume in Aug. $60 and $70 puts

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


Since the open interest (IE) column shows there were already 618 open contracts in the $60 puts and 128 in the $70 puts as of Friday’s close, it’s possible that at least some—but not all—of yesterday’s volume represented traders getting out of existing positions.

Another factor to consider: Intraday charts for these options showed 700 contracts of each traded at the same time on Monday (circled red columns, 9:55–10 a.m. ET), which means the two positions could potentially be part of a single trade:

Chart 2: Lantheus Holdings (LNTH) Aug. $60 put (left) and Aug. $70 put (right), 7/22/22–7/25/22 (5-min.). 700 contracts trade in each strike at the same time.

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


What type of trade? LNTH opened at $69.98 on Monday and spent most of the morning between $70–$71, which made the $70 puts a roughly at-the-money (ATM) strike price. Same-sized positions in an ATM put option and an out-of-the-money (OTM) put could mean a larger trader executed a “bear put spread”—long the $70 puts and short the $60 puts.

It’s a limited-risk, limited-reward downside strategy: The position’s loss is limited to the difference between the premium collected from the short options and the cost of the long options, while the potential profit is greatest (at expiration) if the stock is trading at the lower strike price. But the position has the potential to generate at least some profit if the stock is somewhere between the two strike prices at expiration.

LNTH is scheduled to release earnings on August 4 (a week from Thursday). The stock has had an enviable 2022, up more than 140% as of Monday and hitting an all-time high as recently as last Wednesday:

Chart 3: Lantheus Holdings (LNTH), 2/3/22–7/25/22. Lantheus Holdings (LNTH) price chart.  Paused near June high.

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


Since OI represents the number of open positions at the end of the previous day, traders won’t know until today whether Monday’s volume represented new positions or at least a partial liquidations of existing ones. While acknowledging that two same-size put trades aren’t definitive evidence of a bearish spread, it’s always worthwhile to keep an eye on what options traders are doing as earnings approach.

Market Mover Update: August natural gas futures (NGQ2) picked up yesterday where they left off last week, rallying more than 5% intraday and hitting their highest level since June 14 (see “Natural gas back in energy spotlight”).

Today’s numbers include (all times ET): S&P Case-Shiller Home Price Index (9 a.m.), FHFA House Price Index (9 a.m.), New Home Sales (10 a.m.), Consumer Confidence (10 a.m.).

Today’s earnings include: Alphabet (GOOGL), Microsoft (MSFT), Visa (V), 3M (MMM), Coca Cola (KO), McDonald’s (MCD), Enphase Energy (ENPH), UBS (UBS), General Motors (GM), General Electric (GE), Logitech (LOGI).

 

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