Listening to volatility

Early on Wednesday, Centene (CNC) fell more than 8% to $66.79, part of a three-day, 13.6% sell-off that flipped the healthcare plan provider from being up roughly 4% for the year to 10% in the hole:

It was, in fact, the stock’s biggest three-day loss in more than four years. At Wednesday’s low, CNC was trading at its lowest level since September 12, 2023, and was 27% below its average Street analyst target of $91.56.¹ But the stock soon bounced, pushing above $70 and into the upper half of the day’s range by mid-morning.

Meanwhile, options traders may have initially noticed CNC because it appeared on the LiveAction scan for biggest intraday implied volatility (IV) increases:

An important point about CNC’s activity is that it wasn’t accompanied by an obvious catalyst—there simply hadn’t been any notable news on the company over the past week. The company last released earnings on May 2, and its next release isn’t due until late July or early August. Since IV represents options traders’ expectation for future volatility, it’s possible a sell-off occurring in a news vacuum heightened uncertainty. After all, knowing bad news is one thing, not knowing whether there is bad news, or what it may be, is something else.

Turning to what options traders were actually doing, CNC also appeared on Wednesday’s scan for high put-call ratios:

CNC’s put-call ratio stood at 4.24 early Wednesday, although a good portion of the activity was taking place in the May puts expiring on Friday, and the ticker later dropped off the scan.

One possible takeaway from yesterday’s trading was that the stock’s strong rebound off its intraday lows wasn’t necessarily an “all-clear” signal for potential buyers. While CNC hasn’t made many three-day moves comparable to this one, its performance over the next five trading days was stronger when it closed in the lower half of the third day’s range than when it closed in the upper half, as it did on Wednesday.²

Most importantly, in either case the short-term returns were volatile, which suggests traders would do well to heed CNC’s heightened IV readings. In other words, backward-looking history and forward-looking volatility estimates may be signaling the choppiness isn’t over.

Market Mover Update: The stock on top of Wednesday’s high put-call ratio scan, Huntsman (HUN), fell less than 2.5% intraday, but it traded more than 3,200 times more puts than calls, including 20,500 of the June $23 puts. The stock also had open interest of roughly 20,000 contracts in both the June $22 and $24 puts.

Sarepta Therapeutics (SRPT) stabilized on Wednesday after Tuesday’s 8.2% sell-off (see “Stock quiet, options make noise”).

Today’s numbers include (all times ET): Q1 GDP, second estimate (8:30 a.m.), advance International Trade in Goods (8:30 a.m.), weekly jobless claims (8:30 a.m.), advance retail and wholesale inventories (8:30 a.m.), Pending Home Sales Index (10 a.m.), EIA Natural Gas Report (10:30 a.m.), EIA Petroleum Status Report (11 a.m.).

Today’s earnings include: Best Buy (BBY), Burlington Stores (BURL), Dollar General (DG), Foot Locker (FL), Kohl's (KSS), Autodesk (ADSK), Ambarella (AMBA), Costco (COST), Dell (DELL), Gap (GPS), Nordstrom (JWN), Lululemon Athletica (LULU), Marvell Technology (MRVL), Ulta Beauty (ULTA), Zscaler (ZS).

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¹ TipRanks. Centene (CNC) Stock Forecast & Price Target. 5/29/24.
² All figures reflect Centene (CNC) daily prices, December 2001-May 2024. Specific pattern refers to a day price made three-consecutive lower lows while also hitting its lowest level in at least 126 trading days. Supporting document available upon request.