Traders ride the rails
- CP call volume heavy on Thursday, even as stock retreated
- Volume-OI relationship suggested these were new positions
- Stock has often closed higher the day it announces earnings
On Thursday morning, Canadian Pacific Railway’s (CP) call options volume (around 5,400 contracts) was almost 24 times average, and calls were outnumbering puts nearly 49 to 1:

Source: Power E*TRADE. (For illustrative purposes. Not a recommendation.)
The company is due to release earnings next Tuesday (January 31), which could partially explain its heavier-than-average options volume. But the specifics of that volume are worth noting. Unlike several of the other stocks with notable call activity, CP’s volume was greater than the open interest (OI) in the contracts responsible for more than 95% of the day’s activity:
•February $77.50 calls: 2,000 (vs. OI of 37)
•February $80 calls: 1,600 (vs. OI of 684)
•March $77.50 calls: 1,000 (vs. OI of 90)
•March $80 calls: 755 (vs. OI of 270)
When volume exceeds OI, as it does here, it suggests traders are opening new positions—a development that may become more interesting in light of CP’s earnings-day price history. The following snapshot of the past couple of years shows the stock frequently closed higher after announcing its numbers (green columns):

Source: Power E*TRADE. (For illustrative purposes. Not a recommendation.)
And while this specific window may highlight an unusual streak of earnings rallies, CP’s longer-term track record is similar: Over the past 34 quarters, the stock has gained ground on earnings day 26 times.
Another potentially surprising aspect of yesterday’s heavy call volume was that it occurred on the second day of a relatively sharp pullback. At the day’s low ($75.09), CP was down more than 6% since Tuesday, falling a little closer to the support level defined by the stock’s short-term consolidation (after a 50% retracement of its October 13–December 1 rally):

Source: Power E*TRADE. (For illustrative purposes. Not a recommendation.)
Whether CP will add to its track record of earnings-day rallies remains to be seen. But scanning for unusual options activity can highlight lower-profile stocks that may be getting interest from traders—and reviewing earnings-day performance history may offer some insight into why traders may be positioning themselves the way they are.
Today’s numbers include (all times ET): Personal Income and Outlays (8:30 a.m.), PCE Price Index (8:30 a.m.), Consumer Sentiment (10 a.m.), Pending Home Sales Index 10 a.m.).
Today’s earnings include: American Express (AXP), Chevron (CVX), Colgate-Palmolive (CL).
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