Schaeffer's Trading Floor Blog

Analyst Upgrades: Ambarella, Inc., Orexigen Therapeutics, Inc., and Target Corporation

Analysts upwardly revised their ratings on Ambarella Inc (AMBA), Orexigen Therapeutics, Inc. (OREX), and Target Corporation (TGT)

by 3/4/2015 9:21 AM
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Analysts are weighing in today on semiconductor concern Ambarella Inc (NASDAQ:AMBA), drugmaker Orexigen Therapeutics, Inc. (NASDAQ:OREX), and retailer Target Corporation (NYSE:TGT). Here's a quick roundup of today's bullish brokerage notes on AMBA, OREX, and TGT.

  • AMBA is up 8.3% in electronic trading -- and poised to hit a fresh record high -- after the company's better-than-expected fourth-quarter earnings and upwardly revised guidance was met with no fewer than six price-target hikes. Included in the bunch were Pacific Crest, which boosted its price target by $6 to $76, and Topeka Capital, which raised its target price by $13 to $75. Year-to-date, the shares have already tacked on an impressive 24.3% -- which hasn't gone unnoticed in the options pits -- and a continued surge could prompt another round of upbeat analyst notes. Currently, five out of nine covering analysts maintain a "hold" or worse suggestion toward Ambarella Inc, while the average 12-month price target of $59.17 stands at a discount to last night's close at $63.05.

  • Leerink upped its price target for OREX to $11 from $8 -- and underscored its "outperform" recommendation -- after yesterday's upbeat news regarding the firm's obesity drug, Contrave. Specifically, the brokerage firm said it sees signs of stronger reimbursement and sales for diet drugs if previous cardiovascular concerns continue to improve. Technically speaking, OREX has tacked on 26.1% in 2015 -- and hit a four-year peak of $9.37 yesterday -- to trade at $7.64. The stock is poised to extend this momentum today, which could shake some of the weaker bearish hands loose. Currently, around one-third of Orexigen Therapeutics, Inc.'s float is sold short, and it would take more than 30 sessions to cover these shorted shares, at average daily trading volumes.

  • TGT received upwardly revised price targets from Sterne Agee (to $71), Barclays (to $80), and J.P. Morgan Securities (to $79), after the company unveiled a new round of restructuring efforts yesterday. On the charts, TGT has been a technical standout, rallying more than 27% year-over-year, and based on last night's settlement at $78, the stock is within a chip-shot of its Feb. 25 all-time peak of $78.40. In light of this, there's plenty of room on TGT's bullish bandwagon. Of the 20 analysts covering Target Corporation, 70% maintain a "hold" or "strong sell" suggestion. Plus, the consensus 12-month price target of $74.68 stands at a discount to current trading levels.

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Analyst Downgrades: Bob Evans Farms, Inc., Alcoa Inc., and Morgan Stanley

Analysts downwardly revised their ratings on Bob Evans Farms Inc (BOBE), Alcoa Inc (AA), and Morgan Stanley (MS)

by 3/4/2015 9:20 AM
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Analysts are weighing in today on restaurant chain Bob Evans Farms Inc (NASDAQ:BOBE), aluminum giant Alcoa Inc (NYSE:AA), and financial behemoth Morgan Stanley (NYSE:MS). Here's a quick roundup of today's bearish brokerage notes on BOBE, AA, and MS.

  • BOBE is getting fried ahead of the bell, after reporting disappointing fiscal third-quarter profits and reducing its full-year forecast. The company also announced it is currently not interested in selling its food-products business, BEF Foods. Following this, Miller Tabak and Janney each cut the stock to the equivalent of "hold" from "buy." Bob Evans Farms Inc has previously been strong in 2015, adding 16.5% to close yesterday at $59.64. Still, speculators have been placing bearish bets at the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX). The equity's 50-day put/call volume ratio across these exchanges is 2.89, in the 92nd percentile of its annual range. Ahead of the opening bell, BOBE is off 20.3%.

  • AA is down 2.5% in electronic trading, after BofA-Merrill Lynch downgraded the security to "neutral" from "buy," and slashed its price target to $17 from $20, citing a lower aluminum price forecast. Recently, Alcoa Inc has been weak, on a technical basis. With its close at $15.18 yesterday, the stock has now underperformed the S&P 500 Index (SPX) by over 13 percentage points in the past three months. In the options pits, though, traders have preferred calls over puts, among options expiring in three months of less. AA's Schaeffer's put/call open interest ratio (SOIR) comes in at 0.57, in the 29th percentile of its annual range, meaning near-term speculators are more call-skewed than normal -- a dramatic shift from how things were in mid-January, leading into earnings season.

  • J.P. Morgan Securities cut its price target on MS to $33 from $34, and kept its "neutral" opinion. Still, six of 15 covering brokerage firms say Morgan Stanley is a "strong buy." Yet, on the charts, the shares have struggled since hitting a multi-year high of $39.19 on Dec. 31, losing 8.6% to land at $35.82 at yesterday's close. MS could see additional bearish analyst attention, should its losing streak continue.

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Buzz Stocks: Novogen Limited, Amarin Corporation plc, and Lumber Liquidators Holdings, Inc.

Today's stocks to watch in the news include Novogen Limited (ADR) (NVGN), Amarin Corporation plc (ADR) (AMRN), and Lumber Liquidators Holdings Inc (LL)

by 3/4/2015 9:17 AM
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U.S. benchmarks will likely drop out of the gate, following lackluster pre-payrolls jobs data. In company news, today's stocks to watch include pharmaceutical firms Novogen Limited (ADR) (NASDAQ:NVGN) and Amarin Corporation plc (ADR) (NASDAQ:AMRN), as well as hardwood flooring seller Lumber Liquidators Holdings Inc (NYSE:LL).

  • NVGN is ready to soar at the open, following a promising pre-clinical study of its brain cancer drug Trilexium. The company is aiming to launch a phase 1 clinical trial early next year. Ahead of the bell, Novogen Limited is perched nearly 46% higher, after closing Tuesday at $2.51. A bull gap could pressure additional short sellers to hit the exits. During the most recent reporting period, short interest on NVGN dropped 19.1%.

  • AMRN is 9.1% higher in electronic trading, after reporting a slimmer-than-expected fourth-quarter loss. "Amarin made broad and significant progress in 2014 overcoming first quarter 2014 restructuring issues and starting 2015 with significant positive momentum," said CEO John Thero. Technically speaking, it's already been a great year for Amarin Corporation plc, which has added 57.1% to trade at $1.54. As such, traders at the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) have been placing bullish bets over bearish in recent weeks. During the last 10 sessions, 2,137 AMRN calls have been bought to open, versus just three puts.

  • LL, which got hammered earlier this week following a damning "60 Minutes" report, announced it will host a conference call on March 12 to provide a business update. Traders are reacting positively ahead of the bell, with the shares up 1.5%. Lumber Liquidators Holdings Inc closed yesterday at $40.78 -- just off Monday's two-year low of $38.19, and down 38.5% in 2015. Amid this technical tumult, short selling has picked up. LL's short interest rose almost 28% during the two most recent reporting periods, and now makes up close to 30% of its float -- which would take three weeks to cover, at the stock's average trading volume.

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How Unusual is the Current Volatility Lull?

Increasing appetites for VIX derivatives may be bullish for stocks … or not

by 3/4/2015 8:23 AM
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When the going gets tough for volatility, the tough get going … right back into CBOE Volatility Index (VIX) derivatives! This, from Bloomberg:

"Traders in one of the most popular exchange-traded notes tracking volatility are convinced the calm in U.S. stocks won't last.

Investors added $514 million in February to the iPath S&P 500 VIX Short-Term Futures ETN, known by its ticker symbol VXX, for its biggest monthly inflows since July 2013."

That number (I believe) refers to shares created. And the contrarian in me says that's bullish for stocks. When investors/traders buck a trend with their feet, they often regret it. But perhaps that's not the case here:

"Shares outstanding in VXX, the VelocityShares Daily 2x VIX Short Term ETN and the ProShares Ultra VIX Short-Term Futures exchange-traded fund increased 72 percent last month to 263 million on Feb. 27, a record for positions in all three products. Historically, a rise in traders' interest in these funds has preceded spikes in equity volatility, according to Jason Goepfert at Sundial Capital Research Inc.

'When shares outstanding rise quickly, it has coincided with declining volatility and a VIX that was about to rise in the months ahead,' Goepfert, president at Sundial in Blaine, Minnesota, wrote in a Feb. 27 note. 'Based on the recent jump in the shares outstanding, this should be a negative for stocks.'"

There's only one example cited, the volatility lift from last December. But Jason's work is terrific, so I wouldn't in any way discount his conclusion. For what it's worth, VIX futures set volume records in February, as well. But, I'm just not convinced in any way that volatility traders net-net represent any form of "smart" money.

VIX futures sit in contango now, just like always. Ten-day realized volatility now is near 4, VIX itself is near 14, and VIX futures out to October are near 19. The options market itself expects realized volatility to pick up. And the futures market expects implied volatility to pick up. Or, perhaps more accurately, is willing to a pay a premium on top of VIX itself to hedge, in some fashion, eight months out in time.

And again, this isn't unusual -- this is how the volatility picture almost always looks, save for the fact that backwards-looking realized volatility is on somewhat of a low ebb. So will those volatility buyers and portfolio hedgers prove correct? Perhaps -- but they're usually not. And save for some extra volume, I just don't see how the big picture looks much different from any other time of sluggish volatility.

Disclaimer: Mr. Warner's opinions expressed above do not necessarily represent the views of Schaeffer's Investment Research.

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Earnings Preview: ReneSola Ltd, Trina Solar Limited, and Vivint Solar, Inc

Analyzing recent option activity on ReneSola Ltd. (ADR) (SOL), Trina Solar Limited (ADR) (TSL), and Vivint Solar Inc (VSLR)

by 3/3/2015 1:11 PM
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Among the stocks gearing up to report earnings tomorrow are solar energy concerns ReneSola Ltd. (ADR) (NYSE:SOL), Trina Solar Limited (ADR) (NYSE:TSL), and Vivint Solar Inc (NYSE:VSLR). Below, we'll break down how options traders are positioning themselves, and how much speculators are willing to pay for their bets on SOL, TSL, and VSLR.

  • SOL has been sliding, with the shares down about 64.6% year-over-year to hit $1.37. Accordingly, short-term puts are more prominent than usual in the options pits, as ReneSola Ltd.'s Schaeffer's put/call open interest ratio (SOIR) of 0.47 sits just 8 percentage points from an annual high. Said another way, options traders have rarely been this put-skewed over the past year, when measuring options that expire in three months or less. Traders hoping for additional downside after the company releases earnings tomorrow have history on their side: in the session immediately following its last eight earnings reports, SOL has lost an average of 5.7%, including a 7.1% dip this past November. Near-term options on the stock are available for inflated prices, as its Schaeffer's Volatility Index (SVI) of 175% sits in the 71st percentile of its annual range.

  • On the other hand, sector peer TSL has been edging higher, with the shares up over 19% year-to-date to reach $11.02, including a 0.6% gain today. However, sentiment in the stock's options pits is pessimistic ahead of tomorrow's earnings release. Specifically, Trina Solar Limited's 50-day International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) put/call volume ratio of 0.87 reads higher than 97% of all similar readings taken over the past year. What's more, short interest accounts for nearly 18% of TSL's available float, which would take nearly five sessions to cover, at average daily trading volumes. Meanwhile, in the session following its last four earnings reports, TSL has advanced an average of 7.2%, including a staggering 30.9% gain in May 2014. Option traders are paying historically cheap prices for their short-term bets on the equity, as its SVI of 59% sits in the 21st percentile of its annual range.

  • Since debuting with an IPO price of $16 in October, the shares of VSLR have fallen nearly 50% to rest at $8.12, including a 0.1% dip so far today. Accordingly, bearish activity is ramping up; short interest on Vivint Solar Inc has grown by nearly 33% over the past two reporting periods, and now accounts for over 17% of the stock's available float, representing four and a half days of pent-up buying power, at VSLR's average daily volume. In the session following its last two earnings reports, VSLR has shed an average of 11.9%, with the security failing to notch a positive post-earnings move since going public. Short-term options on VSLR are available for relatively inexpensive prices, as its SVI of 85% sits in the 32nd percentile of all similar readings taken over the past year.

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