Bearish stock, bullish options?

Even though the technology sector has rebounded in recent weeks after a rough July, that doesn’t mean every tech stock is trading at multi-week highs. For example, Five9 (FIVN) has bounced roughly 10% over the past several days, but that move was preceded by shares hitting their lowest level since May 2018 (on August 9) after earnings that beat at the headline level but missed on guidance.¹

Even after the rebound, though, FIVN shares are trading more than 50% below the average Street analyst target of $54:²

While the daily chart highlights the earnings move as a breakdown below FIVN’s June-August lows, the monthly chart (inset) shows it was just the most recent episode in a much larger retreat from the stock’s 2021 all-time highs above $200. In fact, the beginning of the daily chart marks the point at which shares broke down below the 2022-2023 lows that formed the support level highlighted in the monthly chart.

But even though on Tuesday FIVN gave back some of Monday’s 6.2% rally, traders were more active than usual in call options. By noon ET, call volume was nearly eight times average, and FIVN also had one of the day’s higher call-put ratios (around 70:1). With the stock trading mostly between $34.50-$35, traders were mostly concentrating on the October $32.50, $37.50, $42.50, and $45 calls:

While it’s convenient to assume higher-than-average call volume reflects potential bullish interest in a stock, longtime traders understand the difficulty of deciphering the intent of any options trade or group of trades. Aside from the potentially competing outlooks of traders on the opposite side of any position, there’s a question of whether that volume is increasing or decreasing the number of positions in the market.

For example, in this case the open interest (OI) was greater than the volume in two of the calls (the $32.50 and $42.50), which means traders could have been liquidating existing positions instead of opening new ones. Today we’ll find out the reality. If the OI in Tuesday’s active calls is higher across the board, it would at least be possible to make the argument that some traders (i.e., the buyers) were motivated by potential upside in a stock that recently hit a fresh multi-year low.

Market Mover Update: Another stock that recently experienced energized call activity amid bearish stock action—Six Flags (FUN)— is up more than 4% over the past week despite pulling back with the broad market on Tuesday (see “OI deep dive”).

Gold prices rallied to another record high on Tuesday, with December gold futures (GCZ4) tagging an intraday high of $2,570.40.

Recent evidence suggests many corporate boardrooms have remained cautious despite the strong recoveries by the US economy and stock market over the past four years. Find out why Morgan Stanley & Co. strategists think that’s a good thing.

Today’s numbers include (all times ET): mortgage applications (7 a.m.), Atlanta Fed Business Inflation Expectations (10 a.m.), EIA Petroleum Status Report (10:30 a.m.), FOMC minutes (2 p.m.).

Today’ earnings include: Analog Devices (ADI), Dycom (DY), Macy's (M), Target (TGT), TJX (TJX), Williams Sonoma (WSM), Agilent (A), Guess (GES), Snowflake (SNOW), Urban Outfitters (URBN), Zoom Video (ZM), Analog Devices (ADI).

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¹ StreetInsider. Five9 (FIVN) Tops Q2 EPS by 8c; misses on guidance. 8/8/24.
² TipRanks. Five9 (FIVN) Stock Forecast & Price Target. 8/20/24.