The shares of Seagate Technology Holdings PLC (NASDAQ:STX) are up 1.7% at $91.81 this morning, following an upgrade from UBS to "buy" from "neutral." The analyst noted Seagate's structural changes in its hard disk drives (HDD) segment, as well as strong cyclical dynamics, and lifted its price target to $105 from $83.

STX is up 46.6% in 2021 already, while many other sector giants, including Micron (MU) and Western Digital (WDC) have struggled this year in comparison. in fact, the same analyst slashed its price target on WDC to $66 from $72. A look at Seagate stock's technical setup shows the 200-day moving average now emerging as potential support. 

Sentiment looks mixed from the brokerage bunch. Of the 17 covering STX, six still say "hold." The 12-month consensus price target of $104, meanwhile, is a 13.1% premium to current levels. 

An unwinding of pessimism in the options pits could push STX higher. At the International Securities Exchange (ISE), Cboe Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), the equity sports a 50-day put/call volume ratio that stands higher than all but 1% of readings from the past 12 months. This implies options traders are picking up puts at a much quicker-than-usual clip. 

These options can be had at a relative bargain right now too, per STX's Schaeffer's Volatility Index (SVI) of 30%, which stands higher than just 11% of annual readings, meaning options traders are pricing in low volatility expectations at the moment. Plus, the stock's Schaeffer's Volatility Scorecard (SVS) sits at 86 out of a possible 100. This suggests the stock tends to outperform these expectations. 

Welcome back to our weekly series, Schaeffer's Cannabis Stock News Update, where we recap what happened in the world of marijuana stocks and look ahead to how the cannabis industry continues to shape up in 2021.

Investor interest in the cannabis industry is growing at an explosive rate, and the leading players continue to break through legal barrier after legal barrier, especially in the United States. More than 40 U.S. states legalized recreational and/or medical marijuana by the end of 2020. Now, companies are starting to see the opportunity in cannabis cultivation, marketing, distribution, and technology.

Here is a quick roundup of major (and action-worthy!) cannabis stock news from this week:

📈 On Monday Village Farms International, Inc. (NASDAQ:VFF) released its Q2 of 2021 financial results. VFF reported a $22.8 million increase in consolidated sales year-over-year. According to Village Farms leadership, a majority of the sales increase is due to the inclusion of subsidiary, Pure Sunfarms Cannabis Co., sales.

The heart of earnings season is behind us, which means any individual equity hedges related to adverse earnings moves may now turn to more macro hedges. Investors continue to weigh the potential of a slowing world economy as Covid-19 cases and hospitalizations pick up pace and supply chains get disrupted. Additionally, the Taliban re-gained control of the Afghan capital over the weekend as China economic data came in lower than expected.

Additionally, on the heels of several comments from Fed governors the past couple of weeks about the U.S. economy either meeting or getting close to objectives that will allow the Fed to taper bond purchases, it is safe to assume that the Federal Reserve will garner even more attention from investors as we move into the second half of August.

Specifically, Federal Reserve Board Chairman Jerome Powell will host a town hall with educators and students on Tuesday, Aug. 17 at 1:30 p.m. eastern time. Mr. Powell will respond to questions asked by participants who will join the event virtually from across the country. Investors will be looking for hints on any new developments with respect to where the Chair stands on a tapering timeline and when he sees the Fed lifting rates. And later the following week, the Federal Reserve Bank of Kansas City hosts dozens of central bankers, policymakers, academics and economists from around the world at its annual economic policy symposium in Jackson Hole, Wyoming. Symposium participants include prominent central bankers, finance ministers, academics, and financial market participants from around the world. This meeting has historically brought announcements on shifts in Fed policy, if there is a shift or pivot of some kind.

“… there has been a run on Eurodollar options betting the Federal Reserve will opt not to raise interest rates at all. Traders this week have been busy snapping up Eurodollar call options on underlying March 2025 futures that target three-month Libor to fix below 0.5%. These pay off if markets price the Fed keeping its benchmark at its lower bound until then…A scenario where the Fed ends up holding rates near record lows through to 2025 would probably mean that the global economy fails to recover from the pandemic"

            -Bloomberg August 13, 2021

After reading the excerpted article above on Friday, it reminded me of an observation that I made on the trading floor a few weeks ago, when I noticed huge put activity on the iShares iBoxx $ High Yield Corporate Bond ETF (HYG--87.46).

The graphs below display the put open interest build on the exchange-traded fund. At the time, I hypothesized one or a combination of three things going on with this activity:

1. Purely speculative bets against junk bonds, as investors bet against an economic recovery and companies with weak balance sheets suffer the consequences.
2. A way to bet against a financial accident and with cheaper option premiums (HYG options command single-digit volatility readings whereas double-digit readings prevail on equity index options), and/or
3. Hedges to long junk bond positions as investors gravitate to high-yielding bonds because there are little other alternatives in this low interest rate environment (CNBC posted a graph on television in late July displaying an extremely low implied default rate on high-yield bonds – the lowest since readings prior to the 2000 and 2008 equity bear markets).

“Much has been made of the fact that equity market skew -- a measure of how expensive bearish bets are relative to bullish contracts -- has been hovering near all-time highs. However, it’s a similar set-up in the corporate credit market, Goldman notes, where a large spread between implied vol on 25-delta payers and 25-delta receivers normalized by at-the-money contracts suggests ‘the relative price of downside protection has never been more expensive.’”

            -Bloomberg News, July 2, 2021

With the Fed in focus during the next couple of weeks, I am bringing this topic up because the media has highlighted how much optimism there is among market players. There is truth to this, particularly among retail market participants.

However, a fair amount of caution seems to be co-existing with the optimism, albeit the caution is not readily apparent, since it is being played out on various derivative instruments within the credit markets that aren’t as popular and widely followed by the average investor.  

Whether it is fear of a Fed policy mistake and/or the Covid-19 delta variant wreaking havoc on the impressive economic growth we have experienced in 2021, something is worrying the corporate credit markets. And to the extent the equity market is tied to and correlated with the corporate bond market, one could reason that market participants are not in a state of euphoria like the media likes to point out, suggesting expectations may not be as high was we think. That said, as an equity investor, it may be wise to be open to the possibility that credit investors know something that equity market participants do not, so that you can change your views quickly if forced to do so. 

With short interest on S&P 500 Index (SPX--4,468.00) components at multi-year lows and equity option buyers displaying optimism, albeit not in the extreme sense that we saw a few weeks ago, the optimism that we are seeing among equity market participants at present is warranted. For example, the SPX continues to trade within a bullish channel that has been in place for eight months, and it is above the 50-day and 80-day moving averages that have acted as support on pullbacks this year.

As I have said multiple times, do not disturb long positions unless and until there is an extended time period in which the SPX trades below its channel, or moving averages that have held pullbacks this year are no longer holding as support. Such technical deterioration could set the stage for an unwinding of the optimism that is on display in the equity market.

As we look ahead to August standard expiration week, the SPX is just below the 4,475 level, which is double the March 2020 closing low of 2,237.40. Many investors may be anchored to this low and be tempted to take some money off the table if the index doubles the 2020 closing trough. Just overhead is the round 4,500 level, which is also the site of the top of its channel to start of the week. The bottom of the channel ranges between 4,363 on Monday and 4,387 on expiration Friday.

Speaking of expiration, I don’t see major delta-hedge buying or selling in the cards this week, as there is not a major build up of call or put open interest at any strikes in the immediate vicinity of the SPDR S&P 500 ETF Trust (SPY--$445.92). The SPY 440-strike, which is equivalent to 4,400 on the SPX, is the strike with the biggest call and put open interest. It could be supportive if a SPX decline emerges this week, suggesting such a decline would be relatively shallow.

Todd Salamone is Schaeffer's Senior V.P. of Research

Continue Reading:

•  The Week Ahead: Plenty of Retail Earnings, Data on Tap Next Week
• Indicator of the Week: Contrarians Should Target These Sectors

Earnings season winds down, and August charges on this week. There will be plenty of economic data and even a few quarterly reports for investors to unpack this week. Retail sales data will be a highlight, and plenty of department store retailers are announcing their quarterly reports.

Some of the biggest companies to report quarterly earnings will be BJ's Wholesale (BJ), Cisco (CSCO), Deere (DE), Foot Locker (FL), Home Depot (HD), Kohl's (KSS), Lowe's (LOW), Macy's (M), Robinhood Markets (HOOD), Target (TGT) Tencent Music (TME), Walmart (WMT). The Federal Open Market Committee (FOMC) meeting minutes will also be out next week, giving the latest on the central bank's monetary policy. 

Today the Empire State manufacturing index is due out.

The following companies are slated to release quarterly earnings today, August 16:

DouYu International Holdings Ltd. (NASDAQ:DOYU -- $3.45) operates a platform on PC and mobile apps that provides interactive games and entertainment live streaming services in China. DouYu will report its Q2 earnings of 2021 before the bell today.

HeadHunter Group plc (NASDAQ:HHR -- $48.50) operates an online recruitment platform in Russia, Kazakhstan, Belarus, and internationally. HeadHunter Group will report its Q2 earnings of 2021 before the bell today.

Oatly Group AB (NASDAQ:OTLY -- $16.87) provides a range of plant-based dairy products made from oats in Sweden. Oatly Group AB will report its Q2 earnings of 2021 before the bell today.

Paysafe Ltd. (NYSE:PSFE -- $10.20) provides digital commerce solutions to online businesses, SMB merchants, and consumers through its Paysafe Network worldwide. Paysafe will report its Q2 earnings of 2021 before the bell today.

Zhihu Inc. (NYSE:ZH -- $9.30) operates an online content community platform in the People's Republic of China. Zhihu will report its Q2 earnings of 2021 before the bell today.

Fabrinet (NYSE:FN -- $90.68) provides optical packaging and precision optical, electro-mechanical, and electronic manufacturing services in North America, the Asia-Pacific, and Europe. Fabrinet will report its Q4 earnings of 2021 after the market closes today.

GAN Ltd. (NASDAQ:GAN -- $15.97) operates as a business-to-business supplier of internet gambling software-as-a-service solutions to online casino gaming and online sports betting applications in the United States, Italy, the United Kingdom and Channel Islands, and internationally. GAN will report its Q2 earnings of 2021 after the market closes today.

Roblox Corp. (NYSE:RBLX -- $83.96) develops and operates an online entertainment platform. Roblox will report its Q2 earnings of 2021 after the market closes today.

Tencent Music Entertainment Group (NYSE:TME -- $9.80) operates online music entertainment platforms that provides music streaming, online karaoke, and live streaming services in the People's Republic of China. Tencent Music will report its Q2 earnings of 2021 after the market closes today.

Looking ahead to tomorrow, Tuesday will pick up with retail sales, core retail sales, industrial production, business inventories, and the NAHB home builders' index.

All economic dates listed here are tentative and subject to change.

Notable pullbacks and a streak of record closes made for an eventful week on Wall Street. On Monday, the Dow shed triple digits as investors grew wary over the impact rising Covid-19 cases could have on economic growth. They also largely brushed off a record jump in U.S. jobs openings. The passing of a $1 trillion bipartisan infrastructure package in the U.S. Senate came to appease them on Tuesday, with both the Dow and S&P 500 notching record closes. The blue chip benchmark kept surging on Wednesday, notching yet another all-time high alongside the S&P 500, on the heels of cooler-than-expected inflation data. Meanwhile, the tech-heavy Nasdaq chopped lower still, as FAANG names dragged it.

Despite Thursday's muted trading session, both the Dow and S&P 500 scraped together their third-straight record closes, climbing to session highs in the final minutes of trading. This time around, encouraging jobless claims data gave investor sentiment a boost. By Friday, the two major indexes were pacing for their fourth-straight record settlements, with a strong earnings report from Walt Disney (DIS) keeping markets afloat despite a disappointing sentiment report from the University of Michigan. At last check, the Dow and S&P 500 paced for sizeable weekly wins, while the Nasdaq was eyeing a modest loss.

Big Names Step into Earnings Confessional

Though earnings season is on the back nine, plenty of major names stepped into the confessional this week. Among them is Tyson Foods (TSN), which kicked off the week with a beat-and-raise as restaurants reopen. Reddit darling AMC Entertainment (AMC) also beat analysts' expectations amid easing Covid-19 restrictions. The same was not true for Casper Sleep (CSPR), though, which dropped to its lowest level since January after a downbeat second-quarter report. Chesapeake Energy (CHK) had far more positive news, announcing the acquisition of sector peer Vine Energy (VE), in addition to a strong second-quarter earnings report and full-year production forecast.

To follow, Wall Street newbie Bumble (BMBL) fell short of analysts' earnings estimates, despite its quarterly revenue win. Options traders blasted Palantir Technologies (PLTR) after the software concern raised its full-year adjusted free cash flow outlook to more than $300 million. Sonos (SONO) also came to impress, gapping to a three-month high after the company raised its full-year revenue outlook after a third-quarter earnings beat. Another tech name that enjoyed earnings tailwinds is CyberArk Software (CYBR), with is year-over-year revenue growth easily topping Wall Street's estimates. Lastly, Airbnb (ABNB) warned of the threat the Covid-19 delta variant poses, brushing off slimmer-than-expected second-quarter losses.

Tech Movers and Shakers

Several tech companies were busy with earnings this week, though a handful of others made headlines for different reasons. Options bears rushed chip name Western Digital (WDC), for instance, after Morgan Stanley downgraded Micron Technology (MU), citing future weakness in the semiconductor sector. Software concern Zscaler (ZS) flashed a historically bullish signal, on the other hand, indicating it may be poised for more highs. The start of the show was Golden Nugget Online Gaming (GNOG), though, after the company announced an all-stock deal worth $1.56 billion to acquire DraftKings (DKNG). 

August Charges Forward with Retail Earnings, Data

The month of August is charging forward, with a few earnings reports and plenty of economic data for investors to unpack next week. Earnings from BJ's Wholesale (BJ), Cisco (CSCO), Deere (DE), Foot Locker (FL), Home Depot (HD), Kohl's (KSS), Lowe's (LOW), Macy's (M), Robinhood Markets (HOOD), Target (TGT), Tencent Music (TME), and Walmart (WMT) are on tap. Plus, minutes from the Federal Open Market Committee (FOMC) meeting are due out, in addition to retail sales data. Prepare for what is ahead by tuning into the bond market, and find out which sectors to target as a contrarian.

Earlier in the summer, on Schaeffer's Market Mashup, we profiled the most common mistakes options traders make. The roundtable featured Cboe Global Markets' Henry Schwartz, Senior Director, Head of Product Intelligence, and Robert Hocking, Senior Vice President, Head of Multi-Asset Solutions and Derivatives Strategy.

Part one discussed the lessons they'd give to their past self, each traders' top five mistakes they see options traders make. Now, in part two, they discuss the broader surge in market participation from retail traders, and how to further educate yourself. 

What trends have you seen in terms of these new retail traders that are flooding the market in their participation in the markets in the last year?

Henry: It's been an amazing year in terms of overall volume. The very first thing that jumps out at anybody that looks at this market is holy cow, we're looking at 35 to 40 million contracts a day in volume, which is basically double what we were looking at a couple of years ago. A lot of this is in the form of these tiny trades coming from the retail segment.

I've tried to look at the data a whole bunch of different ways. The simplest to me is just look at the smallest possible trades, the single contract trades. And there's been a big, big concentration of this growth in single stocks, even more than exchange traded funds (ETFs) and indexes, which are both up as well, but the retail segment that's seeing these incredible growth from this combination of the work-from-home period, which lasted a pretty long time and this emergence of the zero cost brokerage platforms. That combination has created an enormous amount of volume.

We see about three or 4 million contracts a day, and again, single contract trades, that just weren't there two years ago; they are brand new. Now, some of this is probably coming from institutional or professional traders and hedge funds. But small trades and a wider dispersion of symbols that they're active in, we have about 4500 underlying's with options today. And currently, about 40% of those have average daily volume below 200 contracts. So, those are the very liquid names. It sounds like a lot, but two years ago, it was about 60% of the listings had had average daily volume below 200. Another example in just the amount of the market, the options market, is that S&P 500 ETF Trust activity is about 10% in the last quarter, on a daily basis, and two years ago was about 17%. So, this retail base has really embraced options. And it's a really interesting shift, it's probably the biggest paradigm shift in terms of the way the options markets work that I've seen in probably since we truly began to automate trading and around 2000. Rob, you got anything else to add?

Robert: Yeah, I would just say it's an extremely exciting time for an exchange and to be around product development with this new market segment. And as Henry pointed out, the numbers are off the charts. I think that begs the question, and we get the question all the time at the exchange, will it continue?

I think the answer is yes. And I think so thanks to the increased access points such as smartphones, tablets, online trading platforms, information and the ability to trade is pretty much at everyone's fingertips now. I think this new investor class is here to stay because of it and if anything will continue to grow. Having direct control over your own financial growth can be really empowering and because of that, I think it'll continue to drive adoption.

Starting out it can be daunting to try to parse out what's good information, what's not who to trust and who not to What are some resources that are deemed irreplaceable?

Robert: I think options education is an essential component and something Cboe is heavily invested in off the top of my head from a resource perspective. I think back to my early days in trading when I entered the business, what was considered kind of the options bible at the time was Sheldon Natenberg's book, Option Volatility and Pricing. And then the other one that was big at the time was Lawrence McMillan's book Options as a Strategic Investment. 

Now with that, I'll give the caveat that when I got into the business, the internet was not what it was today, and there were a lot fewer resources out there. But I found those books helpful and it's what a lot of the trading firms would issue to help people really get acclimated to the market. I'd be remiss if I didn't mention Cboe's Options Institute is an incredible resource and has a variety of offerings that can assist users, really at all levels of sophistication,  on their options education journey. We offer educational webinars that you can find and register for through our events calendar on the Siebel Education website. We have our custom options, trading tools, which include an options calculator.

We have previews Cboe's trade alert functionality to let traders know what's going on in the market.  You can subscribe for a free trial to Cboe's live vol, which is our premier trading analysis tool, or you can subscribe to a monthly inside volatility newsletter to catch up on recent trends. And then we also offer bespoke programming and private tutoring suited for small groups or companies. We've made it our mission, to educate our people with that knowledge needed to really create lifelong investors. It's incredibly important to us.

Henry: I've traded, I've built software. Now I'm a part of Cboe. And that's a lot of spheres of the business. Education has always been I think a weak spot for finance in general. The internet certainly opened a lot of things up; there's resources available for a retail trader than ever. The tools that are available now for free to a retail account are better than what we started with a decade or two ago in terms of visualizing volatility, seeing quotes change, etc.

If you look up some of the academics, there's a lot of free stuff out there. But, you do have to kind of make sure things pass the smell test. Don't fall for some of the get rich quick scams that are out there, because they are out there.

An option is a tool just like a chainsaw is a tool. If you know how to use it, it's great. It saves you a lot of time and is very powerful. If you don't know how to use it, you'll be in the hospital To wrap up, I would say that  starting with the best base that you can get in terms of creating an understanding what you're working with, and being careful about it not falling for some of the pitfalls that that are out there is the way to go.