Jon Najarian Sees Massive UOA Leading Into Russian Invasion of Ukraine

Jon Najarian joined CNBC’s Halftime Report Wednesday afternoon to talk about Unusual Options Activity that he’d been witnessing during what has already panned out to be an extremely unusual year. 

Reminder that tomorrow is Thursday.

There have been no green Thursdays in 2022

— Helene Meisler (@hmeisler) February 23, 2022

With the economy bouncing from one crisis to the next, it’s no surprise that the stock market has been taking it on the chin. But this has been no surprise to Jon, who has been all over the action, not only through the news, but through following the smart money. 

When institutions started loading the truck full of energy, airlines, and emerging markets, Jon was quick to join in. Now, with Russia unleashing a full-scale invasion on the country of Ukraine, it’s once again the options market that we turn to in order to find out where things are heading next. But first, let’s break down some of the reasons behind the stock market turmoil that’s bubbled over throughout 2022.

Why has 2022 gotten off to a rocky start? Three big reasons:

Fed rate hikes

With certain members of the Federal Reserve calling for rate hikes of up to one-hundred basis points before July, many are worried about potential market-moving repercussions. And it seems no one is more worried than the analysts over at investment bank JPMorgan, who on Monday predicted 9 rate hikes to come this year (up from an initial prediction of just three). But why would the Fed want to change the pace of planned rate hikes? 

Inflation

Though some say that the Fed is moving too fast, many argue that expeditious rate hikes are necessary to curb fast-moving inflation, which has been weighing heavy on the minds of consumers. 

On Tuesday, the US Conference Board released a report detailing yet another drop in consumer confidence, which is now at its lowest point since last September and dropping steadily. With gas prices in California reaching a record $4.72 last week, it’s likely that we aren’t out of the woods yet.  

Russia

And of course Russia. Referred to this week by a Harvard economist as a big gas station, isn’t helping the issue of higher energy prices. After lining up a massive army along the border of Ukraine whilst delivering a nonstop onslaught of peacekeeping shells, the US and Europe joined forces in introducing sanctions — which means we won’t be getting our gas from Russia for a long time to come. It doesn’t take an economist to figure out that smaller supply plus steady demand equals higher energy prices.

And considering Wednesday night’s developments (a full scale invasion of Ukraine), these economic restrictions are likely just the beginning, according to President Biden, who this week went on to say that he would “work like the devil” to prevent energy prices from becoming out of control — a promise that many doubt is possible. 

Unusual Options Activity

So what can we, as options traders, do with this perfect storm? The same thing we always do: follow the smart money. And if you thought that the institutions were busy buying puts on everything, you’d be surprised. 

Bears are certainly out in force right now. But institutions have been picking their spots and settling into trades that they believe can benefit from the wild conditions we’ve experienced.

Conoco Philips

With Russia pushing prices of crude oil higher by the day, it isn’t surprising that one of the hot-areas experiencing a high amount of call buying is in the energy sector. Energy has already been on fire in 2022, with the $XLE currently up +18.21% YTD against the backdrop of an S&P that’s down -11.67% YTD. As Martin Zweig famously said, “The trend is your friend.” — advice that one big buyer, and our co-founder Jon Najarian, has apparently taken. 

Jon reported unusual options activity in the form of huge call buying in the energy company Conoco Philips ($COP). A buyer purchased 3,500 of the March 4th $92 calls far above the open interest, which was just 23. At the time of the purchase $COP was trading at $88.78 meaning these calls were relatively far out of the money. Still, Jon came along for the ride with this buyer, reporting that he had bought the same calls that morning.

iShares China Large-Cap ($FXI)

Large-cap Chinese stocks have been getting beaten down for far longer than the rest of the market has. The $FXI index is currently down 30.34% year-over-year due to tight regulation from the Chinese government, particularly their treatment of the massive retailer Alibaba, whose CEO has been critical of the Chinese president Xi Jinping. 

According to Jon, institutional call buyers stepped in on Tuesday to attempt to call a bottom on the year of pain that Chinese stocks have received. Jon reported two separate massive call purchases:

23,100 of the $37.50 strike calls expiring March 4th, above the open interest of 5,180 contracts. These were purchased for $0.42 with the $FXI trading at $35.79, meaning that this buyer is betting on an increase of more than 5.6% in under two weeks. This purchase was big enough to entice Jon, who picked up some of these $37.50’s himself. Separately, an additional 4,650 of the April $38 strike calls were bought for $0.72 above the open interest of 4,256 contracts. 

Thirsty for more? Listen to everything else Jon had to say in the Halftime clips below!

#UnusualActivity with @JonNajarian pic.twitter.com/CB2Yewm8Tt

— CNBC Halftime Report (@HalftimeReport) February 23, 2022

And check out this bonus clip of Jon’s final trade based on unusual activity in Palo Alto ($PANW)!

#FinalTrades from the investment committee pic.twitter.com/gBW4rHs8vz

— CNBC Halftime Report (@HalftimeReport) February 23, 2022