Notable Tuesday Option Activity: LOW, AAP, CDW

Advance Auto Parts (AAP) and CDW Corp (CDW) experienced unusually high options activity today: AAP saw 8,920 contracts traded (~892,000 underlying shares), about 45.1% of its one‑month average daily volume (2.0M shares), led by 2,756 contracts in the $55 call expiring Feb 13, 2026 (~275,600 shares). CDW traded 7,793 contracts (~779,300 shares), roughly 44.4% of its one‑month average daily volume (1.8M shares), with 3,713 contracts in the $150 call expiring Mar 20, 2026 (~371,300 shares). The flows point to concentrated call interest that could drive near‑term volatility and signal directional positioning, but represent trading activity rather than company fundamental news.

Analysis

Market structure: The concentrated buy flow in AAP (≈275.6k shares equivalent) and CDW (≈371.3k) concentrated in single strikes ($55 Feb‑2026, $150 Mar‑2026) implies a large directional institutional bet or structured product hedging. If option sellers (MMs) hedge with delta buys at 0.5–0.7 deltas, immediate mechanical demand of ~140k–260k AAP shares and ~186k–260k CDW shares could be created, equivalent to ~7–13% of 1‑month ADV intraday — enough to move short‑term price and skew IV higher.

Risk assessment: Tail risks include a speculative block trade (buyer exits) that leaves enlarged short gamma for dealers, causing violent reversals; or earnings/cyclicality shocks (auto repair vs IT spend) within 1–3 months that render long calls worthless. Immediate horizon (days) is dominated by gamma/IV dynamics; 1–6 months by company earnings and macro consumer/IT budgets; beyond 12 months fundamentals (market share, margins) matter.

Trade implications: For directional exposure prefer defined‑risk long call spreads to capture the 6–12 month bullish view while limiting decay; consider passive cash‑secured short puts only if willing to own shares at strike levels. Short‑term traders can capture elevated IV by selling 30–60 DTE verticals/iron condors if IV > historical 90‑day by 20% and position size ≤0.5% portfolio.

Contrarian angles: Consensus reads heavy call flow as bullish, but it could be a corporate hedge, structured product, or M&A hedge — price may revert once position unwinds. If implied vol spikes >25% vs 30‑day average without fundamental news, selling premium is likely to outperform directional long equity; watch open interest concentration and dealer net gamma as the true driver.

Key Decisions for Investors

• Establish a defined‑risk bullish position in AAP: buy Feb‑2026 $50–$60 bull call spread sized to 1.5% of portfolio notional. Exit if spread value falls >40% from entry or if AAP prints below $42 on 3‑day VWAP.
• Take a 1–2% portfolio position in CDW via Mar‑2026 $140–$160 call spread (debit) to capture the concentrated $150 call flow; trim at +50% premium gain or close within 30 days of a negative earnings guide.
• Sell short‑term premium opportunistically: if single‑stock IV for AAP or CDW rises >20% vs 30‑day average, sell 30–45 DTE iron condors sized to 0.5% portfolio risk, with wings at 10–12% OTM and strict delta‑hedge thresholds.