UTX Options Hot Ahead of Earnings

It appears one trader is paying big bucks for UTX calls today

Managing Editor
Jul 23, 2018 at 3:05 PM
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Blue chip United Technologies Corporation (NYSE:UTX) is down 0.4% at $129.79 in afternoon trading, pacing for its third straight close lower. This pullback comes just after the tech name hit a four-month peak of $132.64 last Wednesday, and the stock is now trading near a 61.8% Fibonacci retracement of its sell-off from its February closing high through its early May closing low, which also coincides with UTX's year-to-date breakeven. Ahead of earnings tomorrow, options traders have been betting bearishly on the Dow stock, though it seems one trader is putting up big bucks to speculate on a boost for the shares.

Daily Fib Chart of UTX

The tech name is slated to report second-quarter earnings before the open tomorrow. Digging into its earnings history, United Technologies stock has closed lower the day after its last four earnings reports -- including a 2.2% drop this time last year. On average, the shares have moved 1.2% in the subsequent session over the past eight quarters, regardless of direction. This time around, the options market is pricing in a larger 3.3% move for tomorrow's trading.

Digging deeper, data from the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) shows UTX with a 10-day put/call volume ratio of 1.23, ranking in the 84th percentile of its annual range. This suggests puts have been purchased over calls at a faster-than-usual clip during the past two weeks.

Today, however, UTX calls are flying off the shelves at twice the average intraday clip. So far, roughly 10,000 calls have traded, compared to just over 5,000 puts. Most of the action is attributable to a block of 5,000 January 2019 130-strike calls, apparently bought to open for $6.55, or about $3.3 million (premium paid * 100 shares per contract * number of contracts). The calls will move into the money if UTX tops $136.55 (strike plus premium paid) by January options expiration.

Likewise, analyst sentiment has been leaning bullishly toward UTX stock. Of the 12 firms following UTX, 10 sport "buy" or better recommendations. Plus, United Technologies stock's average 12-month price target of $150.18 represents a 15.7% premium to current levels.

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