Schaeffer's Trading Floor Blog

Analyst Upgrades: Twitter, Inc., Hewlett-Packard Company, and J. C. Penney Company, Inc.

Analysts upwardly revised their ratings on Twitter Inc (TWTR), Hewlett-Packard Company (HPQ), and J C Penney Company Inc (JCP)

by 4/1/2015 9:06 AM
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Analysts are weighing in today on microblogging platform Twitter Inc (NYSE:TWTR), computer hardware firm Hewlett-Packard Company (NYSE:HPQ), and department store operator J C Penney Company Inc (NYSE:JCP). Here's a quick roundup of today's bullish brokerage notes on TWTR, HPQ, and JCP.

  • TWTR is pointed 1.8% higher in electronic trading, after Jefferies initiated coverage of the stock with a "buy" rating and $65 price target. The positive attention is well-deserved, considering the shares have advanced nearly 40% year-to-date to trade at $50.08. Also, Twitter Inc got a boost yesterday amid chatter Google Inc (NASDAQ:GOOGL) may invest in the company. Despite these encouraging signs, the brokerage bunch remains mixed toward TWTR. Twelve of 26 covering analysts have doled out "hold" or worse opinions, and the equity's consensus 12-month price target is $53.83 -- a slim 7.5% premium to Tuesday's close. In other words, TWTR could be on the verge of additional positive analyst attention.

  • HPQ is 1.3% higher ahead of the bell, following an upgrade to "buy" and price-target hike to $41 from $37 at Jefferies. This follows yesterday's news that the computer company has become embroiled in overseas litigation, surrounding its 2011 purchase of Autonomy. On the charts, Hewlett-Packard Company has struggled in 2015, retreating more than 22% to perch at $31.16, and hitting an annual low of $31.03 last Friday. Meanwhile, the brokerage crowd is divided over the long-term underperformer. Half of the analysts tracking the shares have given them a "buy" or better evaluation, while the other half have assigned "hold" or worse ratings.

  • Finally, JCP is up 1% in pre-market trading, after J.P. Morgan Securities lifted its price target on the stock to $10 from $8, but maintained its "neutral" opinion. This comes on the heels of yesterday's huge session in which J C Penney Company Inc soared 7.4%, following a price-target hike at Piper Jaffray. The shares are now nearly 30% higher year-to-date, sitting at $8.41. Consequently, short sellers may be feeling the heat. Nearly one-third of JCP's float is sold short, which represents more than seven sessions' worth of trading, at typical daily volumes.

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Sorting Out VXX the Best We Can

Let's take a second to understand what the iPath S&P 500 VIX Short-Term Futures ETN (VXX) really is

by 4/1/2015 8:20 AM
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I was tweeting up and back the other day about the iPath S&P 500 VIX Short-Term Futures ETN (VXX) with a currency guy, and it occurred to me that now that it's the "it" product again, we better refresh our nuts and bolts -- and what better time to talk VXX than April Fools' Day? So, here's a transcript of an interview I conducted with ... myself:

Q: What does VXX measure?

A: It tracks a hypothetical rolling 30-day CBOE Volatility Index (VIX) future. A VIX future is not VIX itself. It's essentially a "bet" on the price of "settled" VIX on the open of the day the future expires. VIX futures generally trade at a premium to VIX itself.

Q: That sounds great. How do the wizards that run VXX create this exchange-traded note (ETN)?

A: VXX owns a package of futures and swaps that replicate a 30-day future.

Q: So, if VIX futures trade at a premium to VIX, why does VXX always lag VIX over time?

A: That's due to good old contango. So long as the near-term VIX futures curve is sloped up, VXX will ultimately drift. There's a common misconception that the reason it hits VXX is because it loses money rolling out in time every time it buys a higher/longer-dated future and sells a shorter/cheaper one. As Vance Harwood demonstrated, that's not accurate; the money and out is equal. Rather, the dynamic is that so long as time has positive value (a future is worth less so long as it has less time to expiration), VXX loses value by mere virtue of the fact that whatever it owns has less value now than it did a day ago, an hour ago ... even a nanosecond ago. Thus, even if VXX could roll paper every nanosecond, it would still lose money when the futures sit in contango.

Q: That sounds horrible. So, how did the Securities and Exchange Commission (SEC) allow listing of this product to begin with?

A: Well, in all fairness, VXX works as advertised. Quite simply, no one should ever buy and hold VXX. It can work directionally, but it declines over the course of time. You know what else declines over the course of time? An S&P 500 Index (SPX) put -- or any put, for that matter. No one's banning put options any time soon, nor should they ban VXX. Just go into VXX with the knowledge that it's fine to buy it if you expect a volatility spike and/or a market decline, but you better time it well. Again, that's the same criteria you should use for a put option.

Q: If VXX is ultimately going toward zero, why not just short it?

A: Good question. If you can tolerate some spike in your volatility, then yes, sitting with a VXX short will eventually work. But those spikes can get quite violent. And remember that as VIX lifts significantly, VIX futures will likely flip to backwardation. And if that happened, the math works in favor of VXX. Time value helps VXX, further compounding a move that's already painful. Further, a VXX short has open-ended loss potential, much like every short.

Q: There's an exchange-traded product (ETP) for everything nowadays, there must be one that lets you go short VXX more safely, right?

A: I'm glad I asked! Yes, you can "short" VXX that way. VelocityShares Daily Inverse VIX Short-Term ETN (XIV) is an inverse VXX tracker. But, like any tracker, it compounds. Long story short, it loses a bit of value any time the underlying (VXX, in this case) revisits a prior price point. VXX does churn at times. In fact, we just ended a three-and-a-half-month stretch where VXX didn't make new lows . It does always eventually go lower, so XIV does work over time. And since you are going short VXX via a "long," you don't have open-ended exposure. But, it's important to note that over time, an XIV long will underperform a straight VXX short, even factoring in occasional short-borrowing costs.

Q: That's a lot to digest. Give me one final conclusion.

Only go long VXX with a short-term play in mind. You're not betting on VIX, per se. Rather you're betting on the short-term directional move of VIX futures. Shorting VXX sounds great, but make sure you have the stomach for a quick drawdown.

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

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Bears Pounce After Iconix Brand Group, Inc. (ICON) CFO Resigns

Iconix Brand Group Inc (ICON) traders are buying May puts

by 3/31/2015 3:11 PM
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Iconix Brand Group Inc (NASDAQ:ICON) is 7.2% lower today at $33.77 -- putting the equity about 0.1% in the red year-to-date -- after the brand management firm announced the resignation of Chief Financial Officer Jeff Lupinacci. In light of this news, some speculators are betting on ICON to continue its downtrend, as put activity in the options pits is ramping up.

In afternoon action, puts are exchanging hands at 150 times the average daily rate. The day's most active contract by a landslide is the May 35 put, where buy-to-open activity has been uncovered. By purchasing this put, traders expect the security to continue its slide beneath the strike price through the close on Friday, May 15, when the option expires.

However, today's appetite for puts runs opposite the recent trend in the options pits. Before today, calls had been prominent, as ICON's 50-day International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) call/put volume ratio of 9.47 stands in the 77th percentile of its annual range. Echoing this indicator is the security's Schaeffer's put/call open interest (SOIR) ratio of 0.26, which ranks lower than 80% of all equivalent readings taken over the past year. Simply stated, near-term traders are more call-heavy than usual.

Elsewhere, short sellers have taken a shine to Iconix Brand Group Inc (NASDAQ:ICON), as 33.4% of the stock's available float is sold short. What's more, it would take these speculators over four weeks to cover their bets, at average trading volumes. Against this backdrop, it's possible that some of the recent call buying could be attributable to shorts looking for a hedge. Meanwhile, the brokerage bunch is mostly bullish on ICON, as four out of five covering analysts rate the stock a "strong buy," with no "sell" or worse recommendations to be found.

Daily Chart of ICON Since October 2014

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Earnings Preview: Monsanto Company, CarMax, Inc., and Acuity Brands, Inc.

Analyzing recent option activity on Monsanto Company (MON), CarMax, Inc (KMX), and Acuity Brands, Inc. (AYI)

by 3/31/2015 12:56 PM
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Among the stocks gearing up to report earnings are agricultural specialist Monsanto Company (NYSE:MON), used car dealer CarMax, Inc (NYSE:KMX), and lighting solutions provider Acuity Brands, Inc. (NYSE:AYI). Below, we'll gauge the pre-earnings temperature of MON, KMX, and AYI.

  • MON has been a technical underperformer, with the shares down 5.4% year-to-date to linger near $112.97. What's more, Monsanto Company found itself in hot water last week after a troubling decision from the World Health Organization (WHO). Accordingly, sentiment in the options pits has been bearish, as MON's 50-day International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) put/call volume ratio of 2.66 stands in the 98th percentile of its annual range. Meanwhile, in the session immediately following its last four earnings reports, MON has gained an average of 2.3%, including a 5.1% pop in June. Short-term options for the stock are available for relatively inflated premiums, as its Schaeffer's Volatility Index (SVI) of 23% is higher than 73% of all equivalent readings taken over the past year.

  • On the other hand, KMX has been a technical beast, with the shares notching a fresh all-time high of $69.52 earlier today, before cooling off a bit to $69.24 -- bringing its year-over-year gain to 45.8%. As such, call buying in the options pits has hit a yearly peak, as CarMax, Inc's 10-day ISE/CBOE/PHLX call/put volume ratio of 9.44 is the highest such reading taken over the past 12 months. KMX has been unpredictable in the earnings spotlight, with its last six quarterly reports sparking big one-day percentage moves -- ranging from a loss of 9.5% last September to a gain of 16.5% in June. Traders are paying middling prices for their short-term bets on the stock, as KMX's SVI of 42% ranks in the 52nd percentile of its annual range.

  • AYI has been trending higher as well, with the shares up 20.9% year-to-date to hit $169.28. Additionally, Acuity Brands, Inc. attained a new all-time high of $172.76 just yesterday. Puts have been popular in the options pits, as AYI's Schaeffer's put/call open interest ratio (SOIR) of 1.86 arrives in the 98th percentile of its annual range. Said another way, short-term speculators have rarely been this put-skewed on the security over the past 12 months. However, AYI doesn't usually drop after earnings; the stock has closed higher the day after seven of its last eight reports. Traders are paying fair prices for their near-term bets, as the security's SVI of 45% stands higher than 48% of all equivalent readings from the past year.

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Analyst Update: Kohl's Corporation, Skyworks Solutions, Inc., and Coronado Biosciences, Inc.

Analysts adjusted their ratings on Kohl's Corporation (KSS), Skyworks Solutions Inc (SWKS), and Coronado Biosciences Inc (CNDO)

by 3/31/2015 11:49 AM
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Analysts are weighing in today on retailer Kohl's Corporation (NYSE:KSS), semiconductor issue Skyworks Solutions Inc (NASDAQ:SWKS), and biotech firm Coronado Biosciences Inc (NASDASQ:CNDO). Here's a quick look at today's brokerage notes on KSS, SWKS, and CNDO.

  • KSS is up 2.7% to $78.68 -- and earlier touched a near-eight-year high of $78.80 -- after Sterne Agee raised its price target on the equity to $85 while keeping its "buy" rating. The hike comes as no surprise, considering the shares of Kohl's Corporation have advanced 28.9% year-to-date. Despite this impressive price action, short sellers have taken a shine to the stock, as short interest increased by about 9.7% over the past two reporting periods. As of right now, 12.07% of KSS' available float is sold short, which would take almost two weeks to cover, at average trading volumes. Should KSS extend its quest for new highs, a short squeeze could add fuel to the stock's fire.

  • Raymond James raised its price target on SWKS by $12 to $117 -- in uncharted territory. The stock is still feeling the effects of last week's sector-wide swoon, down 1.2% today to hit $98.97. Looking back, though, Skyworks Solutions Inc has been a technical juggernaut, with the shares up 163.1% year-over-year. In fact, the equity notched an all-time high of $102.77 just last week. However, sentiment in the options pits has been bearish, as SWKS's 50-day International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) put/call volume ratio of 0.45 ranks higher than 88% of all equivalent readings taken over the past year. On the other hand, the brokerage bunch remains extremely bullish on SWKS, as 86% of covering analysts rate the security a "strong buy."

  • CNDO is up 17.5% to $4.16, after MLV & Co upgraded the stock to "buy" from "hold," while increasing its price target to $7 from $2. What's more, the brokerage firm said it expects Coronado Biosciences Inc's opioid drug, tramadol, to win regulatory approval as early as next year, and estimated the drug could generate $80 million in annual sales by 2018. On the charts, CNDO has been a technical outperformer of late, with the shares up about 70% year-to-date, and just off an annual high of $5.35, tagged earlier this month. However, puts have been prominent in the options pits, as CNDO's 50-day ISE/CBOE/PHLX put/call volume ratio of 0.11 stands in the 80th percentile of its annual range. Simply stated, traders have been buying puts over calls at a faster-than-usual clip.

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