Schaeffer's Trading Floor Blog

Earnings Preview: Conn's, Inc., E-Commerce China Dangdang Inc., and Vitae Pharmaceuticals, Inc.

Analyzing recent option activity on CONN'S, Inc. (CONN), E Commerce China Dangdang Inc (ADR) (DANG), and Vitae Pharmaceuticals Inc (VTAE)

by 3/30/2015 2:28 PM
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Among the stocks gearing up to report earnings tomorrow are consumer products concern CONN'S, Inc. (NASDAQ:CONN), Beijing-based Internet merchant E Commerce China Dangdang Inc (ADR) (NYSE:DANG), and biotech firm Vitae Pharmaceuticals Inc (NASDAQ:VTAE). Below, we'll gauge the pre-earnings temperature of CONN, DANG, and VTAE.

  • CONN has been in recovery mode, with the shares up 103% since notching a three-year low of $14.02 on Dec. 16. Today, however, the equity is 4.4% lower to linger near $28.47. Some traders see downside in CONN's future, as nearly 36% of the stock's available float is sold short, which would take about 13 sessions to cover, at average trading volumes. Meanwhile, in the session immediately following its last two earnings reports, the shares have shed an average of 35.7%. Short-term options for CONN are available for historically inexpensive prices, as its Schaeffer's Volatility Index (SVI) of 105% sits in the 27th percentile of its annual range.

  • On the other hand, DANG has been a technical laggard, with the shares down about 50% from their Aug. 13 annual high of $16.42 to hit $8.25. Accordingly, sentiment in the options pits has been bearish, as E Commerce China Dangdang Inc's 50-day International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) put/call volume ratio of 0.21 ranks in the 78th percentile of its annual range. Traders anticipating post-earnings downside for the security have history on their side -- in the session immediately following its last four earnings reports, DANG has lost an average of 9.1%, including a 14.5% drop last May. Near-term options for the security are available for relatively attractive prices, as its SVI of 73% stands in the 42nd percentile of all equivalent readings taken over the past year.

  • VTAE has been sliding as well, with the shares falling 51.8% from their Dec. 11 all-time high of $23.35 to trade around $11.25. However, the brokerage bunch is still universally optimistic on the security, as 100% of covering analysts rate it a "strong buy." Looking elsewhere, in the session immediately following its last trip to the earnings confessional on Nov.12, Vitae Pharmaceuticals Inc dropped 7.4%. Short sellers are apparently gambling on an extended slump for VTAE, as short interest grew 22.5% during the last reporting period.

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Analyst Update: GoPro, Inc., Ambarella, Inc., and Tekmira Pharmaceuticals Corporation

Analysts adjusted their ratings on GoPro Inc (GPRO), Ambarella Inc (AMBA), and Tekmira Pharmaceuticals Corp (TKMR)

by 3/30/2015 11:44 AM
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Analysts are weighing in today on wearable camera maker GoPro Inc (NASDAQ:GPRO), semiconductor firm Ambarella Inc (NASDAQ:AMBA), and biotech issue Tekmira Pharmaceuticals Corp (NASDAQ:TKMR). Here's a quick look at today's brokerage notes on GPRO, AMBA, and TKMR.

  • GPRO is up 1.3% to hit $43.27, after Dougherty & Company raised its opinion on the stock to "buy" from "neutral." The upgrade is somewhat surprising, given the shares of GoPro Inc have fallen about 31.6% year-to-date, and are struggling to conquer resistance at their 40-day moving average. The rest of the brokerage bunch is divided on GPRO, though, as 46% of covering analysts rate the stock a "strong buy," with only 8% doling out "strong sell" recommendations. What's more, the security's average 12-month price target of $63.92 stands at a 47.7% premium to current trading levels, leaving the door wide open for a round of analyst downgrades and/or price-target cuts to create headwinds.

  • Canaccord Genuity lifted its price target on AMBA by $7 to $81 -- in uncharted territory -- while underscoring its "buy" rating, sending the shares 3.9% higher today to reach $73.05. Including today's positive price action, the shares of Ambarella Inc have now advanced an impressive 44% year-to-date. In fact, AMBA tagged a record peak of $73.50 just a week ago. Accordingly, sentiment in the options pits has been bullish, as AMBA's 10-day International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) call/put volume ratio of 2.75 sits in the 83rd percentile of its annual range.

  • Nomura initiated coverage on TKMR with a "buy" rating and a lofty $32 price target, which represents an 83% premium to the shares' current perch at $17.49, and sits in unexplored terrain. After initially jumping out of the gate, the shares of Tekmira Pharmaceuticals Corp are down about 0.5%, chipping away at a 15.6% year-to-date gain. Calls have been prominent in the options pits, as TKMR's Schaeffer's put/call open interest ratio (SOIR) of 0.23 ranks higher than only 15% of all equivalent readings taken over the past 12 months. Simply stated, near-term speculators have rarely been this call-skewed over the past year. Traders aren't the only ones who are optimistic, either, as all five analysts covering the stock rate it a "buy" or "strong buy."

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Analyst Downgrades: Microsoft Corporation, Altera Corporation, and Xilinx, Inc.

Analysts downwardly revised their ratings on Microsoft Corporation (MSFT), Altera Corporation (ALTR), and Xilinx, Inc. (XLNX)

by 3/30/2015 9:43 AM
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Analysts are weighing in on blue chip Microsoft Corporation (NASDAQ:MSFT), as well as semiconductor concerns Altera Corporation (NASDAQ:ALTR) and Xilinx, Inc. (NASDAQ:XLNX). Here's a quick roundup of today's bearish brokerage notes on MSFT, ALTR, and XLNX.

  • RBC cut its price target on MSFT by $3 to $47, but reiterated an "outperform" rating. Nevertheless, MSFT is higher along with its blue-chip peers. The company over the weekend said it's extending its deadline to re-negotiate its search partnership with Yahoo! Inc (NASDAQ:YHOO) by 30 days. What's more, Microsoft Corporation announced the release date (Oct. 27) for the fifth installment in its extremely popular "Halo" videogame series via a live-action commercial during the season finale of AMC's "The Walking Dead" television show. On the charts, MSFT has been a technical laggard of late -- largely due to a dismal earnings report in January -- with the shares down 10.9% year-to-date at $41.40. However, sentiment in the options pits has been nearing a bullish peak, as MSFT's 50-day International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) call/put volume ratio of 2.15 ranks higher than 98% of all similar readings taken over the past year.

  • No fewer than three brokerage firms revised their opinions on ALTR this morning, after The Wall Street Journal reported that Intel Corporation (NASDAQ:INTC) is considering buying out the semiconductor firm. The report hit the Street late Friday, sending INTC significantly higher and ushering ALTR to a three-year peak of $45. Drilling down, Macquarie and Morgan Stanley both downgraded Altera Corporation to "neutral" or equivalent ratings, with the former raising its price target by $3 to $45, and the latter bumping its price target by $8 to $44. Today, the shares of ALTR -- which closed Friday at $44.39 -- are about 3.7% lower to hit $42.75, bringing their year-to-date lead to 15.7%. Puts have been prominent in the stock's options pits, as ALTR's 50-day ISE/CBOE/PHLX put/call volume ratio of 0.49 reads in the 80th percentile of its annual range.

  • XLNX -- which followed sector peer ALTR higher Friday -- woke up to a pair of downgrades, as both Morgan Stanley and MKM lowered their rating on the equity to "neutral" or equivalent opinions. At last check, Xilinx, Inc. is 2.2% lower at $41.40, steepening its year-over-year deficit to 23.7%. However, calls have been popular in the options pits, as XLNX's 10-day ISE/CBOE/PHLX call/put volume ratio of 2.54 ranks in the 67th percentile of all similar readings taken over the past year.

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Buzz Stocks: UnitedHealth Group Inc., Teva Pharmaceutical Industries Ltd, and Horizon Pharma PLC

Today's stocks to watch in the news include UnitedHealth Group Inc. (UNH), Teva Pharmaceutical Industries Ltd (ADR) (TEVA), and Horizon Pharma PLC (HZNP)

by 3/30/2015 9:41 AM
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U.S. benchmarks are following their European counterparts into the green today. Meanwhile, M&A Monday is in full swing, with healthcare concern UnitedHealth Group Inc. (NYSE:UNH), as well as drugmakers Teva Pharmaceutical Industries Ltd (ADR) (NYSE:TEVA) and Horizon Pharma PLC (NASDAQ:HZNP) unveiling new acquisitions.

  • UNH is up 4% at the open -- and hit a fresh record high of $123.76 -- after the blue chip said it will purchase pharmacy benefit manager Catamaran Corp (USA) (NASDAQ:CTRX) in a deal valued at roughly $12.8 billion, or $61.50 per CTRX share. CTRX, meanwhile, has soared 24.6% to its own all-time peak of $60.24. Today's price move for UNH is more of the same, with the stock boasting a 50% year-over-year lead. Should UnitedHealth Group Inc. continue this momentum, another round of upbeat analyst attention could be on the horizon. Currently, the average 12-month price target for UNH sits at $127.19, just 3.5% from the equity's current perch at $122.87.

  • TEVA, meanwhile, announced it will acquire biotherapeutic firm Auspex Pharmaceuticals Inc (NASDAQ:ASPX) for about $3.2 billion in cash, or $101 per share of ASPX. This represents a roughly 42.4% premium to the latter's close at $70.91 on Friday. Technically speaking shares of Teva Pharmaceutical Industries Ltd have put in a solid performance this month, adding 10% thus far. Additionally, the stock hit a multi-year peak last Monday, but was last seen trading at $62.79. In the options pits, put buying has picked up speed in recent weeks. Specifically, TEVA's 10-day International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) put/call volume ratio has jumped to 0.74 from 0.06 over the past two weeks, and now ranks in the 69th annual percentile.

  • HZNP will increase its portfolio for treating genetic disorders with its roughly $1.1 billion purchase of Hyperion Therapeutics Inc (NASDAQ:HPTX). This equates to about $46 per share of HPTX, which closed Friday at $42.74. HZNP is up 14.2% out of the gate -- and hit its highest perch on record of $25.50 in early trading. However, the stock has already put in a strong showing in 2015 -- thanks in part to a stellar quarterly earnings report in late February -- tacking on 93% to trade at $24.91. Against this backdrop, sentiment is skewed toward the bullish side. At the ISE, CBOE, and PHLX, Horizon Pharma PLC's 50-day call/put volume ratio of 6.38 rests higher than 79% of similar readings taken in the past year. Additionally, five analysts have levied a "strong buy" rating toward the equity, versus one "hold" and not a single "sell."

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How to Prove Your VIX Thesis in One Easy Step

Arbitrary time frames are the key to calling 'trends' in the CBOE Volatility Index (VIX)

by 3/30/2015 9:29 AM
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I know I harp on this a lot, but TV seems dedicated to giving the impression of a volatility surge that just doesn't exist. Here's something I heard Friday: "VIX is up 18% in this really volatile week."

Now, that's factual -- or rather, I presume it was factual when the host said it. Even with Friday's volatility sell-off, the CBOE Volatility Index (VIX) rallied a shade under 15% on the week. But it's a really misleading characterization of the current state of volatility.

Using percentages to contextualize moves when the absolute value of the underlying is low always serves to mislead. If I said, "VIX was up 2 points this week," I would get nothing but yawns. But that's what happened. Conversely, if I said, "VIX rallied 15% this week!!!!", you would take more notice. So, I totally get why TV sticks toward the latter. But it doesn't make it a good way to describe what's going on. As an investor/trader, it's much better to view VIX (or any volatility indicator) in point moves and point premiums (realized vol vs. implied vol) as opposed to percentage moves.

Even if we set that aside and use percentage moves, that statement of "18% VIX POP!" still serves to mislead. It just picks an arbitrary endpoint and uses it as gospel. Remember all the way back two weeks ago? The investing world waited with bated breath as the Fed descended from Mt. Sinai with their "Biggest Statement Ever." On March 17, VIX closed at 15.66. And then, on March 18, it suffered its third worst percentage decline of 2015.

Someone could have come on TV last Friday and said "VIX down 4% in sleepy eight-day trading stretch." In other words, you can prove any volatility thesis quite easily these days. Just pick the right endpoints. I would best describe VIX as "meandering within a modest range." It has closed between 13 and 17 every session since February 11 -- and it's right in the middle of that range now.

Ten-day realized volatility in the S&P 500 Index (SPX) sits in the low 13s now, a bit off the recent highs, but considerably off the lows of early March, near 4. So, it's fair to say actual volatility had an upswing this past month, even if forward-looking implied volatility really didn't do much. But much of that pop is already in the rearview.

I do believe that the basic confusion lies in the frequent definition of market volatility as "stocks not going up." And in that context, yes, the churn of 2015 does equal "volatility." But by the actual definition of volatility, we're neither here nor there right now.

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

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