Schaeffer's Trading Floor Blog

Options Check-Up: CVS Health Corp, First Solar, Inc., and Starbucks Corporation

Analyzing recent option activity for CVS, FSLR, and SBUX

by 10/23/2014 8:40 AM
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Among the stocks attracting attention from options traders lately are pharmacy chain CVS Health Corp (NYSE:CVS), alternative energy expert First Solar, Inc. (NASDAQ:FSLR), and coffee king Starbucks Corporation (NASDAQ:SBUX). Below, we'll break down how options buyers are positioning themselves, and how much speculators are willing to pay for their bets on CVS, FSLR, and SBUX.

  • CVS hit a record high of $83.79 yesterday, before settling with a 0.4% gain at $83.25. Longer term, the shares have tacked on a healthy 16.3% year-to-date. Therefore, it comes as no surprise that options traders have bought to open nearly three times as many calls as puts over the past two weeks, per data from the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX). The resultant 10-day call/put volume ratio of 2.66 ranks in the bullishly skewed 78th percentile of its annual range. What's more, those looking to buy CVS Health Corp options have an encouraging track record on their side, as the stock's Schaeffer's Volatility Scorecard (SVS) checks in at 75. In other words, over the last 52 weeks, the shares have tended to make bigger moves than what their options have priced in.

  • FSLR fell 2.8% yesterday to close at $54.75, placing the shares just above their year-to-date flat line. In options land, traders have bought to open puts (relative to calls) at an accelerated rate recently, per the stock's 50-day ISE/CBOE/PHLX put/call volume ratio of 0.56 -- which sits just 10 percentage points from a 12-month peak. What's more, based on the security's SVS of 79, shares of First Solar, Inc. have tended to make outsized moves, relative to what the options market has been expecting. Looking ahead, FSLR is scheduled to report third-quarter earnings between Wednesday, Oct. 29, and Monday, Nov. 3.

  • Finally, SBUX, which will report fiscal fourth-quarter numbers after next Thursday's closing bell, ended Wednesday 0.3% higher at $74.60. Nevertheless, the stock is sitting on a year-to-date deficit of 4.8%. At the ISE, CBOE, and PHLX, traders have been buying to open puts over calls at an extreme rate during the past two weeks, based on Starbucks Corporation's 10-day put/call volume ratio of 2.74 -- which bests all other readings from the last year. Meanwhile, the cost of short-term SBUX options is middle-of-the-road, per the equity's Schaeffer's Volatility Index (SVI) of 23%, which rests in the 50th annual percentile.

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Analyst Update: AOL, Inc., Caterpillar Inc., and LinkedIn Corp

Analysts adjusted their ratings on AOL, CAT, and LNKD

by 10/22/2014 1:42 PM
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Analysts are weighing in today on Internet issue AOL, Inc. (NYSE:AOL), construction equipment maker Caterpillar Inc. (NYSE:CAT), and professional networking site LinkedIn Corp (NYSE:LNKD). Here's a quick look at today's brokerage notes on AOL, CAT, and LNKD.

  • AOL, Inc. (NYSE:AOL) has advanced 1.6% to trade at $41.38, following an upgrade to "buy" from "equal weight" at Evercore Partners. Nevertheless, the stock remains down 11.2% year-to-date. On the sentiment front, options traders have been drawn to puts over calls in recent weeks. Specifically, AOL's 10-day International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) put/call volume ratio of 2.30 ranks in the bearishly skewed 93rd percentile of its annual range.

  • Caterpillar Inc. (NYSE:CAT), by contrast, has stumbled to a 1% loss at $94.90, bringing its year-to-date gain down to 4.5%. Spurring the move lower was data showing a 10% year-over-year drop in global retail sales, and a subsequent price-target cut to $104 from $109 at UBS, which also reiterated its "neutral" assessment of the equity. From a wider perspective, most brokerage firms are similarly skeptical toward CAT. Specifically, 11 of the 17 analysts following the stock have doled out "hold" ratings. Looking ahead, CAT will step up to the earnings plate bright and early tomorrow.

  • LinkedIn Corp (NYSE:LNKD) -- which will report earnings next Thursday evening -- is off 2.6% this afternoon to churn near the round-number $200 level. This, despite a price-target hike to $265 from $258 at Macquarie, which underscored its "outperform" opinion, as well. Today's move lower is likely being cheered in the options pits. During the past 10 weeks at the ISE, CBOE, and PHLX, LNKD has racked up a put/call volume ratio of 1.03, which sits just 2 percentage points from a 12-month high. In other words, speculators have been buying to open bearish bets over bullish at a near-extreme rate.

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Stocks On the Move: iRobot Corporation, Regulus Therapeutics Inc, and Tekmira Pharmaceuticals Corporation

IRBT, RGLS, and TKMR are moving sharply in Wednesday's trading

by 10/22/2014 11:25 AM
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U.S. stocks are modestly higher this morning, as Wall Street digests stimulus news out of Europe, a slight uptick in consumer prices, and the latest round of earnings reports. Among the names making significant moves are artificial intelligence issue iRobot Corporation (NASDAQ:IRBT), as well as drugmakers Regulus Therapeutics Inc (NASDAQ:RGLS) and Tekmira Pharmaceuticals Corporation (NASDAQ:TKMR). Here's a quick look at how IRBT, RGLS, and TKMR are faring on the charts today.

  • IRBT is 16.6% higher at $36.87, after the firm said third-quarter profit nearly doubled from the year-ago period, topping analysts' expectations. The shares of iRobot Corporation are now 5.3% higher year-to-date, and on pace to end the week atop their 10-week and 20-week moving averages for the first time since early July. J.P. Morgan Securities chimed in by upping its price target to $38 from $36.50, though the brokerage firm upheld a lukewarm "neutral" rating. Elsewhere, short sellers could be hitting the bricks. Short interest accounts for more than a quarter of IRBT's total available float, representing nearly nine sessions' worth of pent-up buying demand, at the stock's average pace of trading.

  • RGLS is hands-down the biggest advancer on the Nasdaq thus far, after the firm announced encouraging data regarding its proposed hepatitis C treatment. The stock was last seen 84.6% higher at $12.50, and earlier peaked at a record high of $15 -- more than twice the stock's closing price of $6.77 yesterday. As with IRBT, Regulus Therapeutics Inc shares are likely enjoying a short squeeze, as short interest accounts for 8.1% of the equity's available float. In fact, it would take more than three weeks to buy back all of these bearish bets, at RGLS' average daily trading volume.

  • TKMR is flirting with $19.69, up 9.8%, after the company said it's started limited manufacturing of an Ebola treatment, which should be available by early December. On the charts, TKMR has skyrocketed 147% year-to-date, but since grazing the $30 level earlier this month, has dropped to test support at its 80-day moving average. Most analysts are already in the bulls' camp, with four out of six offering up "buy" or better endorsements, and not a single "sell" in sight. Plus, the consensus 12-month price target of $36.50 stands in uncharted territory for Tekmira Pharmaceuticals Corporation, and represents expected upside of more than 85% to the stock's current price.

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Analyst Downgrades: Cree, Inc., Yelp Inc, and VMware, Inc.

Analysts issued bearish notes on CREE, YELP, and VMW

by 10/22/2014 9:36 AM
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Analysts are downwardly revising their ratings on semiconductor stock Cree, Inc. (NASDAQ:CREE), business review site Yelp Inc (NYSE:YELP), and IT issue VMware, Inc. (NYSE:VMW). Here's a quick roundup of today's bearish brokerage notes on CREE, YELP, and VMW.

  • CREE dropped 10% right out of the gate -- and to a new annual low of $29.49 -- after its fiscal first-quarter earnings miss and lower-than-expected current-quarter revenue guidance prompted a round of bearish attention from the brokerage crowd. Included in the bunch was a downgrade to "neutral" from "buy" and price-target cut to $31 from $44 at D.A. Davidson, and a price-target reduction to $28 from $42 -- and tepid "neutral" rating -- at Susquehanna. On the charts, CREE has shed 52% year-to-date to trade at $29.77, and should the stock's technical struggles continue, another round of downgrades and/or price-target cuts could apply additional pressure. In fact, four out of 14 covering analysts maintain a "strong buy" rating on the shares, and the equity's consensus 12-month price target of $41.65 sits at a 26% premium to current trading levels.

  • Brean Capital initiated coverage of YELP with a lukewarm "hold" rating and price target of $68.78, ahead of the company's third-quarter earnings report, which is due out after tonight's close. Technically speaking, YELP has made some big moves to both the upside and downside in 2014, but after all is said and done, the stock is sitting on a modest 3.4% year-to-date gain to trade at $71.28. On the sentiment front, option traders have been upping the bearish ante in the weeks leading up to Yelp Inc's quarterly announcement. The equity's 10-day International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) put/call volume ratio of 0.94 ranks just 12 percentage points from a 52-week peak.

  • VMW is down nearly 8% at the open -- following last night's close at $88.19 -- after offering up a disappointing outlook for fourth-quarter revenue. The news prompted a round of bearish brokerage notes, including a downgrade to "neutral" from "buy" at Nomura, and a price-target cut to $86 from $96 at Susquehanna. Today's price move could come as music to the ears of one group of traders; specifically, short sellers. More than 26% of VMware, Inc.'s float is sold short, and would take about 13 sessions to cover, at the security's average daily pace of trading.

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Buzz Stocks: Tesla Motors Inc (TSLA), 3D Systems Corporation, and Ocwen Financial Corp

Today's stocks to watch in the news include TSLA, DDD, and OCN

by 10/22/2014 9:28 AM
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U.S. stocks are poised to continue yesterday's upward momentum, thanks to tailwinds out of Europe. Among the equities in focus, today's stocks to watch are electric vehicle maker Tesla Motors Inc (NASDAQ:TSLA), 3-D printer maker 3D Systems Corporation (NYSE:DDD), and mortgage lender Ocwen Financial Corp (NYSE:OCN).

  • TSLA is slightly lower in pre-market action, on word that Daimler sold its 4% stake in the stock, and that auto-heavy Michigan banned direct sales of Tesla cars. So far in 2014, Tesla Motors Inc shares have added more than 56%, and recently bounced from their 200-day moving average -- a trendline that contained the equity's pullback in early May. Nevertheless, short-term option traders are extremely put-heavy, relatively speaking. The stock's Schaeffer's put/call open interest ratio (SOIR) sits at an annual high of 1.61, implying that TSLA's near-term speculators haven't been more put-biased during the past year. An unwinding of pessimism in the options pits could help TSLA resume its quest for record highs.

  • DDD is bracing for an 11% plunge out of the gate, after the company issued lackluster quarterly sales guidance and cut its full-year revenue forecast. "We are disappointed that we failed to fully capitalize on the robust demand for our direct metal and consumer products during the quarter," said CEO Avi Reichental. On the charts, DDD has surrendered more than half its value in 2014, settling at $43.48 on Tuesday, and today's drop will most likely place the shares in annual-low territory. While bearish sentiment is prevalent for 3D Systems Corporation -- short interest accounts for close to one-third of the stock's total float -- a change of heart among analysts could exacerbate selling pressure on DDD. In fact, seven out of 16 brokerage firms harbor "strong buy" opinions, leaving the door wide open for potential downgrades.

  • Finally, OCN is headed 5.5% lower, as shareholders continue to react to allegations that the company was stacking the proverbial deck against struggling borrowers. The shares of OCN dropped 18% yesterday to land at $21.48, after tagging a two-year low of $18.57 in intraday action, and analysts are adjusting their opinions and price targets accordingly. Moody's and S&P downgraded their credit ratings on OCN, and at least three brokerage firms issued price-target cuts this morning. Among them, BofA-Merrill Lynch slashed its target to $23 from $35 and downgraded Ocwen Financial Corp to "neutral" from "buy." A mass exodus of option bulls could also weigh on OCN. On the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), the security's 50-day call/put volume ratio of 1.68 stands higher than 81% of all other readings from the past year, pointing to a growing bullish bias among option buyers of late. Short-term traders are paying a pretty penny, too, amid heightened expectations for volatility; the stock's Schaeffer's Volatility Index (SVI) sits at an annual peak of 106%.

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