Traders test resistance

  • PVH consolidating in Jan. after 70% surge
  • Rally stalled near resistance at 2021 highs
  • Call volume higher than average on Wednesday

When trading high-profile stocks with eight-digit average daily volume and tens or hundreds of thousands of options changing hands every day, it can sometimes be a challenge to wade through the flood of data.

The situation is much different with a stock like apparel maker PVH (PVH), which trades less than million shares a day on average, with similarly modest options activity. Its options volume of 965 contracts early Wednesday was nearly four times average, enough for it to show up on the scan for unusual call volume:

Chart 1: LiveAction scan: Unusual call volume, 1/17/24. PVH call volume 3.9x avg.

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

With only a handful of options trades scattered across the next few expiration months, it was easy to spot the biggest concentration of volume—700 contracts split evenly between the March $130 and $135 calls:

Chart 2: PVH (PVH) March calls, 1/17/24. PVH (PVH) options chain. Identical volume in OTM calls.

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

Before discussing what, if anything, that volume may represent, let’s take a look at what PVH stock has been doing. By midday on Wednesday, it had fallen more than 2% intraday to a roughly one-month low of $116.05. The following weekly chart shows the stock has been consolidating for a few weeks after a 70% November-December rally pushed it to challenge long-term resistance defined by its 2021 highs:

Chart 3: PVH (PVH), 4/18/21–1/17/24 (weekly). PVH (PVH) price chart. Consolidating at resistance.

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

In a nutshell, Wednesday saw the stock extend its recent retreat from resistance to test its recent (early January) lows, while also experiencing higher-than-average call activity. The trades in the March $130 and $135 calls were also larger than the open interest, which means they could represent traders getting into, rather than out of, the market.

Aside from simply being initiated by a bullish trader who bought the options or a bearish one who shorted them (the trades in the two contracts were executed at the same time), these identical call trades could also represent an out-of-the-money bull call spread—i.e., long the $130 calls and short the $135 calls. This strategy sacrifices the open-ended potential profit of a long call, but creates a lower-cost position that could profit if the stock rallies.

Again, there’s no way to know if that was, in fact, what yesterday’s call trades represented—and even if it did, there’s no guarantee the position would be successful. But it does present the possibility that at least one trader thought PVH could break out above a resistance level that has, so far, turned back the stock’s bulls.

Market Mover Update: Bond prices have slumped along with stocks so far this week as yields continued to climb. The benchmark 10-year T-note yield closed above 4% on consecutive days for the first time since December 13.

B. Riley Financial (RILY) fell more than 6% intraday on Wednesday, closing at its lowest price of the year (see “Eyeing the breakout”). Avantor (AVTR) dipped to its lowest price of 2024 on Wednesday, with open interest in the February $19 puts standing at 43,200 contracts (see “Big trades, big decisions”).

Today’s numbers include (all times ET): Housing Starts and Building Permits (8:30 a.m.), Weekly Jobless Claims (8:30 a.m.), EIA Natural Gas Report (10:30 a.m.), EIA Petroleum Status Report (11 a.m.).

Today’s earnings include: Fastenal (FAST), Keycorp (KEY), Taiwan Semiconductor (TSM).


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