Unusual timing for unusual trade activity

  • IR fell after releasing earnings last week
  • Stock rebounded this week amid heavy options volume
  • Calls most active two days after earnings move

Heavy options activity just before and after an earnings release is nothing out of the ordinary. Companies often appear on scans for unusual options activity when they release their numbers, especially if their stock makes a big move.

This week’s activity in Ingersoll Rand (IR) was a little different. The industrial machinery company shared its quarterly numbers after last Thursday’s close (May 2), topping earnings estimates but missing on revenue.1 The stock fell 6.6% on Friday, closing at its lowest level ($86.72) since February 14. Even after that sell-off, though, IR was up more than 12% for the year, having tagged an all-time high above $96 in March:

Chart 1: Ingersoll Rand (IR), 12/29/23–5/8/24. Ingersoll Rand (IR) price chart. Unusual options volume after earnings move

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

While 6.6% may not sound like a particularly big earnings move, it is for IR. The stock has fallen 6% or more in a day only 13 other times since 2017, and it’s dropped 5% or more only 26 other times.

That wasn’t the only unusual thing about IR’s recent activity. The stock rebounded Monday and Tuesday, gaining a total of 3.6%. While a bounce after a sharp loss wouldn’t normally raise eyebrows, in this case the move ran contrary to IR’s historical track record: After the 26 other times it fell 5% or more in a single day, the stock was higher two days later only nine times, and it rallied on both days only four times.

Also, on the second day of the bounce (Tuesday), IR appeared on the LiveAction scans for unusual call volume and highest call-put ratios. The top half of the following options chain shows the activity in the June $95 and $100 calls on Tuesday, while the bottom half shows where things stood on Wednesday:

Chart 2: LiveAction scan: IR June call options, 5/7/24–5/8/24. Ingersoll Rand (IR) options chain. Net OI increase

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

From Tuesday to Wednesday, the open interest (OI) in the $95 calls increased from 317 to 2,200, while the OI in the $100 calls decreased from 4,400 to 3,400. So, while there appeared to be some traders getting out of the $100 calls, there was a net increase of positions between the two contracts.

That wasn’t the only notable options activity. The top portion of the options chain below shows 3,400 of the September $100 calls traded on Tuesday (vs. OI of 198), while the bottom half shows OI increased to 3,600 on Wednesday, suggesting traders were getting into the market:

Chart 3: IR September call options, 5/7/24–5/8/24. Ingersoll Rand (IR) options chain. New positions in $100 calls

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

Heavy call activity isn’t necessarily a sign that bulls are staking a claim to a stock. There are two sides to every trade, so it stands to reason that at least some of the people selling IR calls on Tuesday weren’t bulls. That said, more often than not, traders tend to use puts more often than calls to take bearish positions.

In this case, an unusual stock move combined with unusual options activity—two days after an earnings release—may keep this stock on a few trading screens for a while.

Market mover update: Today is the seventh trading day of May, the day that has, on average, marked the end of May’s early-month strength. When weakness has unfolded in May, it has often been concentrated in trading days 8-12 (see “May’s mixed messages”).

RTX (RTX) pushed above the high of its recent trading range and closed at its highest level in more than a year (see “Breakouts and volatility”). On Wednesday June WTI crude oil futures initially fell nearly 2% to $76.89—their lowest level since March 12—before reversing to close up for the day.

Today’s numbers include (all times ET): weekly jobless claims (8:30 a.m.), EIA Natural Gas Report (10:30 a.m.).

Today’s earnings include: Beam Therapeutics (BEAM), Canadian Solar (CSIQ), Fiverr (FVRR), Hyatt Hotels (H), Roblox (RBLX), Spectrum Brands (SPB), Tapestry (TPR), Tower Semiconductor (TSEM), US Foods (USFD), Dropbox (DBX), Dillard's (DDS), Yelp (YELP).


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1 StreetInsider.com. Ingersoll-Rand (IR) Tops Q1 EPS by 9c; offers guidance. 5/2/24.

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