When “unusual” market activity isn’t

Two stocks from yesterday’s scan of unusual options activity, two different perspectives on the implications of that activity.

Both Equifax (EFX) and International Paper (IP) have sold off relatively briskly over the past two weeks, and on Thursday morning, each had options volume in excess of 15 times their daily average:

Equifax’s heightened activity may have been the more “expected” of the two, since the company released earnings after the bell on Wednesday, topping headlines earnings but missing on revenue and issuing disappointing guidance. The stock fell 10.4% intraday but pared its losses later in the morning:

Meanwhile, put volume was around 25 times average, but call volume was also high, roughly 13 times average. But around 11:30 a.m. ET, there wasn’t a single position (or handful of positions) responsible for most of that volume. Trades were mostly scattered across the April options expiring today, most in strike prices with the highest open interest, and no contract had volume above 700. In other words, it looked like traders adjusting positions after a big earnings move—taking profits or cutting losses, as necessary.

International Paper (IP) was a different story. As the stock rebounded in early trading after a sharp, five-day sell-off, the majority of its activity was in just a few options—specifically, simultaneous 5,000-contract trades (around 9:55 a.m.) in the June $37.50 and $42.50 calls. That could mean a large trader was putting on a bull call spread, buying the lower-strike call and selling the higher-strike call.

If that was the case, it suggested a trader may have been expecting the stock to rally at some point in the next several weeks, since the position would need to be between the two strike prices (at expiration) for the position to be profitable. That translates to a roughly 6%-20% push above the stock’s price on Thursday morning:

Another important difference between the two stocks: In IP’s case, the unusual options volume wasn’t occurring after earnings, but one week before the company was scheduled to release its numbers (April 25)—a potential catalyst traders may have been positioning themselves for on Thursday.

Market Mover Update: Despite falling to a 12-day low on Tuesday, by Thursday Eversource Energy (ES) had bounced back into the price range that would make an April $60 straddle potentially profitable for traders who shorted the spread on April 4 (see “Breaking down a straddle”). Kellanova (K) bounced for a second day, while open interest in the May $57.50 calls increased to 6,000 (see “Time frame price perspective”).

Today’s numbers include (all times ET): Chicago Fed President Austan Goolsbee speaks at the SABEW annual conference (10:30 a.m.).

Today’s earnings include: American Express (AXP), Fifth Third Bank (FITB), Procter and Gamble (PG), Schlumberger (SLB).

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