Tuning in to open interest
- JBHT rallied 4.8% intraday on Monday
- Options trading dominated by heavy put activity
- Short-side trade or liquidation of bearish position?
Monday was a modestly bullish day for US stocks, and one of the stocks enjoying the ride to the upside was shipping and logistics company J.B. Hunt Transport (JBHT), which rallied nearly 5% intraday:
Source: Power E*TRADE. (For illustrative purposes. Not a recommendation.)
While JBHT is down nearly 6% for the year, it’s also up almost 15% from its early-October low, and yesterday’s rally took a sizeable bite out of this month’s pullback.
Although there didn’t appear to be anything particularly noteworthy in Monday’s price action, it was much more interesting—and possibly, confusing—in light of what was happening in the options market. JBHT put volume was more than eight times its call volume, and more than nine times its daily average:
Source: Power E*TRADE. (For illustrative purposes. Not a recommendation.)
JBHT was far from being an outlier on this scan. Of the eight other stocks with prices above $10, seven (JNPR, KSS, LBPH, LMND, LOVE, LW, MPWR) were also trading in positive territory yesterday morning.
Because puts become short stock positions when exercised, it may seem counterintuitive for put volume to be unusually heavy when a stock is rallying. But in addition to the reality that bullish traders may choose to sell puts instead of (or in addition to) buying calls, there’s also the issue of what traders with existing positions may be doing.
For example, JBHT’s options chain showed all of Monday’s activity occurred in two contracts, the December $170 and $180 puts:
Source: Power E*TRADE. (For illustrative purposes. Not a recommendation.)
These 1,000-contract trades could be unrelated, but to some people it may have looked like a large trader was establishing a bearish vertical put spread—long the $180 put and short the $170 put, with the potential to profit (at expiration) if the stock is below $180.
But other observers may have noticed that yesterday’s volume in the $170 puts was the same as the open interest (OI), and almost the same as the OI in the $180 puts. So, was a large trader establishing (or expanding) a bearish spread position, or pulling the plug on an existing one? The answer to that question may shape opinion regarding short-term sentiment in JBHT, but the unavoidable catch is that because OI is always delayed by one day, traders would have wait until Tuesday to find out if the totals in these contracts were higher or lower than they were on Monday.
Markets usually reveal themselves only grudgingly, and certainty is never achievable. Options activity can certainly provide useful information about what traders and investors are doing in a particular stock, but those insights may not be immediately apparent.
Market Mover Update: On Monday the stock market took a first step toward racking up a bullish Thanksgiving week, although the S&P 500 lost much of its early momentum after hitting a new record intraday high.
Today’s numbers include (all times ET): S&P Case-Shiller Home Price Index (9 a.m.), FHFA House Price Index (9 a.m.), consumer confidence (10 a.m.), new home sales (10 a.m.).
Today’s earnings include: Analog Devices (ADI), Abercrombie & Fitch (ANF), Best Buy (BBY), Burlington Stores (BURL), Dick's Sporting Goods (DKS), Kohl's (KSS), Macy's (M), J.M. Smucker (SJM), CrowdStrike (CRWD), Dell (DELL), HP (HPQ), Nordstrom (JWN), Urban Outfitters (URBN), Workday (WDAY).
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