OI deep dive
- FUN in correction after hitting 29-month high
- Options open interest roughly nine times average
- Positions are concentrated in OTM calls
July wasn’t a great month for the stock market, but it was even more challenging for Six Flags (FUN). After hitting its highest levels since February 2022 early in the month, the theme park operator had retreated 17% by the end of it, and extended the decline to around -26% in August:
Source: Power E*TRADE. (For illustrative purposes. Not a recommendation.)
While many traders would likely expect such a move to be accompanied by heavier-than-average options activity—specifically, large put positions—FUN’s options chain reveals an interesting concentration of positions.
On Wednesday, FUN was relatively high on the LiveAction scan for unusual open interest (OI), with nearly nine times its average number of options positions:
Source: Power E*TRADE. (For illustrative purposes. Not a recommendation.)
The options chain showed just two contracts accounted for more than 40% of the 30,149 open contracts—7,100 and 6,100 in the December $50 and $60 calls, respectively:
Source: Power E*TRADE. (For illustrative purposes. Not a recommendation.)
In contrast, total put option OI on Wednesday was 864 contracts, and only one put had OI above 100.
What can these positions tell us? First, since these are December options, the traders who bought and sold them aren’t necessarily operating on a short-term horizon. Second, the majority of the trading took place on July 31, August 7, and August 9—a little before and immediately after the company released earnings on August 8, but well into the stock’s sell-off. (Aside: The volume in both contracts on July 31 was around 2,500, which could mean at least some of these positions were related—e.g., part of a multi-leg strategy, such as a bull call spread.)
Finally, the higher of the two strikes ($60) is close to the average Street analyst price target for the stock ($60.86 as of Wednesday),1 roughly 43% above where the stock was trading on Wednesday, and a little above where the stock peaked in July. If these positions remain open, it could mean the call buyers are anticipating a significant rally in coming months, while the sellers are expecting upside momentum to be scarce.
Market Mover Update: Axos Financial (AX) fell more than 1% intraday on Wednesday, closing below Monday’s low (see “Stock seeks support, put volume jumps”).
Was last week’s stock market volatility an overreaction to concerns about potential recession? Morgan Stanley & Co. economists shed light on where the economy stands, and how traders and investors can look past the “noise.”
Today’s numbers include (all times ET): Retail Sales (8:30 a.m.), weekly jobless claims (8:30 a.m.), Philadelphia Fed Manufacturing Index (8:30 a.m.), Empire State Manufacturing Index (8:30 a.m.), import and export prices (8:30 a.m.), Industrial Production and Capacity Utilization (9:15 a.m.), Business Inventories (10 a.m.), Housing Market Index (10 a.m.), EIA Natural Gas Report (10:30 a.m.).
Today’ earnings include: Alibaba (BABA), Dillard’s (DDS), Deere (DE), Tapestry (TPR), Walmart (WMT), Applied Materials (AMAT).
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1 TipRanks. Six Flags Entertainment Corporation (FUN) Stock Forecast & Price Target. 8/14/24.