Schaeffer's Trading Floor Blog

Pricing in a Post-Earnings Move for GoPro Inc and Tesla Motors Inc (TSLA)

What the options market is expecting from GPRO and TSLA after tonight's earnings results

by 7/31/2014 7:52 AM
Stocks quoted in this article:

Earnings season is winding down, but not without some late fireworks to spice it up. The early high-profile names were about as snoozy as the market itself, but a couple of later names -- notably Facebook Inc (NASDAQ:FB) and Twitter Inc (NYSE:TWTR) -- popped pretty nicely. Twitter did particularly well versus "the board." Options priced in about a 10.5% move, while the actual pop was over twice that. And, that was after an even bigger blast in the overnight.

We still have a couple more interesting names yet to report. Specifically, tonight features results from GoPro Inc (NASDAQ:GPRO) and Tesla Motors Inc (NASDAQ:TSLA).

GoPro reports for the first time as a public company, so there's zero history to fall back on. Well, zero of its own history -- we do have countless examples of recent hot initial public offerings (IPOs) reporting for the first time. I'd guess the next one to miss "The Number" is the first one. There's literally zero chance a company like this disappoints right out of the gate.

GPRO is unique among these sorts of names in that they actually already earn money. The fact that they'll certainly beat doesn't mean the stock goes up, of course; there's "whisper" numbers, guidance for next quarter, et al.

The options aren't pricing in all that much. My system shows about a 7.5% move priced in. And, that's right on the heels of the big TWTR beat -- something that often puts a little more anticipation into the next names on the docket.

Take that 7.5% with a grain of salt, though. The calculation is based on the bid-up in implied volatility. But, it's difficult to baseline implied volatility when there's so little history. Perhaps all nearer-month options collapse tomorrow. The "VIX" of GPRO is about 75, while January options have an implied volatility in the low 60s; so, let's see what happens to both those numbers tomorrow.

As to direction, put open interest is at record levels versus call open interest. "Record" doesn't mean an awful lot when you've only traded for a month, though. The actual ratio is 1.2 puts over calls, which is unexceptional.

TSLA, of course, has some more history to go on. The options, coincidentally, also price in about a 7.5% move. That's low versus some TSLA moonshots and collapses on earnings days, including the session subsequent to its early May first-quarter results, which saw the stock gap down 11%. On the other hand, it's a maturing company, and the swings do tend to taper off over time. The stock itself is about as non-volatile as we've ever seen it. The 10-day realized volatility is about 13, as it's basically hovered between $215 and $230 since early July.

If you're looking for some downside, here's something for you. Puts are relatively unpopular. Here's the Schaeffer's put/call open interest ratio (SOIR) over the last half year:

Tesla Motor Inc SOIR Since January 2014

I generally expect a stock to react in the same direction as the current trend. However, given Tesla Motors Inc (NASDAQ:TSLA) has had no real trend lately, there's not much to go on here.

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

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