Schaeffer's Trading Floor Blog

Analyst Downgrades: Angie's List Inc, ARM Holdings plc (ADR), and Walter Energy, Inc.

Analysts downwardly revised their ratings on ANGI, ARMH, and WLT

by 4/24/2014 9:47 AM
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Analysts are weighing in today on business referral site Angie's List Inc (NASDAQ:ANGI), chip maker ARM Holdings plc (ADR) (NASDAQ:ARMH), and coal producer Walter Energy, Inc. (NYSE:WLT). Here's a quick roundup of today's bearish brokerage notes.

  • Although ANGI reported a smaller quarterly earnings loss last night, the stock received a price-target cut to $18 from $21 at RBC this morning. On the charts, Angie's List Inc popped 9.2% higher to $14 out of the gate, but remains 7.7% below its year-to-date flat line. Nevertheless, the equity boasts eight "buy" or better endorsements, compared to seven "holds" and zero "sell" suggestions. Plus, the average 12-month price target among covering analysts comes in at $19.06, territory ANGI hasn't explored since early February. Should the stock resume its long-term downtrend, a round of downgrades and/or price-target cuts may be on the way, which could put more pressure on the shares.

  • ARMH -- which posted poorly received first-quarter earnings results yesterday morning -- saw its price target decreased to 900P from 918P, and to 950P from 970P, at Exane Bnp Paribas and Natixis, respectively, this morning. (Meanwhile, HSBC upped its price target by 40P.) Since the start of 2014, ARM Holdings plc (ADR) has lost about 11% to trade at $48.64, yet the equity's Schaeffer's put/call open interest ratio (SOIR) of 0.62 ranks lower than 98% of comparable readings from the past 12 months, indicating ARMH call open interest (relative to put open interest) is almost at an annual-high level among options expiring within the next three months.

  • WLT -- which is down a whopping 54.6% year-to-date to trade at $7.56 -- received a price-target cut to $10 from $12 at RBC earlier today. Amid the stock's decline, short interest spiked 23.4% during the last two reporting periods. Now, 32.8 million shares are sold short, which is equivalent to more than half of Walter Energy, Inc.'s available float.

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Analyst Upgrades: Apple Inc. (AAPL), Facebook Inc (FB), and Zynga Inc

Analysts upwardly revised their ratings on AAPL, FB, and ZNGA

by 4/24/2014 9:29 AM
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Analysts are weighing in today on technology powerhouse Apple Inc. (NASDAQ:AAPL), along with social stocks Facebook Inc (NASDAQ:FB) and Zynga Inc (NASDAQ:ZNGA). Here's a quick roundup of today's bullish brokerage notes.

  • AAPL is poised to erase its year-to-date loss in today's session, currently up 8.3% in pre-market action to trade at $568.50 following the company's stronger-than-expected earnings report last night. The upbeat news led more than a dozen brokerage firms to upwardly adjust their positions on the stock, including Goldman Sachs and Canaccord Genuity, which each increased their price target by $10 to $620 and $610, respectively. Heading into the quarterly event, short-term Apple Inc. option traders had been trading puts, relative to calls, at a near-annual-high rate, as the equity's Schaeffer's put/call open interest ratio (SOIR) of 0.93 ranks higher than 99% of comparable readings taken during the past 12 months.

  • FB -- which is up 12.3% year-to-date to trade at $61.36, as of yesterday's close -- is also poised for a daily win, after revealing upbeat first-quarter earnings results and receiving multiple bullish brokerage notes. Among the optimists on Wall Street are Morgan Stanley and Deutsche Bank, which lifted their price targets to $73 from $72, and to $85 from $76, respectively. Facebook Inc is no stranger to bullish attention from analysts, already maintaining 30 "buy" or better endorsements versus three "holds" and not a single "sell" suggestion. Furthermore, the average 12-month price target of $74.61 represents expected upside into territory yet to be explored by FB.

  • Finally, ZNGA -- which last night announced a 36% decline in revenue for the first quarter and reported a management shake-up -- nevertheless scored a significant amount of positive brokerage notes in pre-market trading, including $0.50 price-target hikes to $4.50 and $5 at BMO and Piper Jaffray, respectively. On the charts, Zynga Inc is down about 6% on a one-month basis to trade at $4.42 (though, the shares are poised for an earnings-induced pop today), and so investors have upped the bearish ante on the stock. Short interest climbed 25.3% during the last two reporting periods, and now accounts for 8.4% of ZNGA's available float.

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Buzz Stocks: Zynga Inc, Apple Inc. (AAPL), Nokia Corporation (ADR), and General Electric Company

Today's stocks to watch in the news include ZNGA, AAPL, NOK, and GE

by 4/24/2014 9:22 AM
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Thanks to the latest round of earnings reports, futures are pointed higher ahead of the opening bell. In company news, here are some stocks to watch today:

  • Mark Pincus, co-founder of gaming giant Zynga Inc (NASDAQ:ZNGA), is giving up his operational duties, after the company reported a 36% drop in first-quarter revenue last night. However, Pincus will remain chairman of the board and will also take on an advisory role for ZNGA. (Reuters, via FOX Business)

  • Apple Inc. (NASDAQ:AAPL) announced a 7-for-1 stock split, as well as an additional $30 billion in share buybacks, when announcing its fiscal second-quarter earnings report last night. What's more, the iPhone parent upped its quarterly dividend by 8% to $3.29 per share. (Reuters)

  • Due to a tax dispute, Nokia Corporation's (ADR) (NYSE:NOK) sale of its global handset business to Microsoft Corporation (NASDAQ:MSFT) will likely not include an India-based mobile phone factory. Instead, NOK will continue to operate the plant under a service agreement with MSFT. (Reuters)

  • General Electric Company (NYSE:GE) has reportedly entered into talks to purchase Alstom SA, an industrial firm based out of France. According to Bloomberg, the potential deal could be worth upwards of $13 billion -- about a 25% premium to Alstom's current market value. (MarketWatch)

  • McDonald's Corporation (NYSE:MCD) mascot Ronald McDonald has a new look that includes a rugby shirt and cargo pants, created by Broadway designer Ann Hould-Ward. Additionally, the red-headed clown will finally be active on Twitter Inc (NYSE:TWTR) using the hashtag #RonaldMcDonald on the @McDonaldsCorp account. (Los Angeles Times)

  • Also, 3M Co (NYSE:MMM), Caterpillar Inc. (NYSE:CAT), Verizon Communications Inc. (NYSE:VZ), AAPL, Facebook Inc (NASDAQ:FB), and General Motors Company (NYSE:GM) reported quarterly earnings. (CNBC; Bloomberg Businessweek; Bloomberg)

  • Finally, The Procter & Gamble Company's (NYSE:PG) Gillette brand will introduce a new razor next week that looks a lot like a Dyson Ball vacuum. The ProGlide FlexBall is built with a swiveling-ball hinge that allows the blade -- any blade, in fact -- to pivot in any direction. (Consumerist)

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The Impact of India's Election on Volatility

Traders in India are paying up for protection ahead of the country's May 16 election results

by 4/24/2014 7:18 AM
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I was out for a couple days, and wouldn't you know it, everyone's now fighting to pay up for options. The CBOE Volatility Index (VIX) is surging!

India's national election is causing a breakdown in the six-year relationship between prices of the nation's equities and options.

While the CNX Nifty Index (NIFTY) and the India VIX index have almost always traded in opposite directions since Bloomberg began compiling the data in 2007, they're now moving together more than ever before. The gauges' 20-day correlation reached a record 0.53 on April 2, up from a historical average of minus 0.48, as prices for both stocks and options increased.

Traders are paying up to protect against swings before the May 16 election results. Polls show the opposition Bharatiya Janata Party will win a majority in a government whose mandate is to revive economic growth. The Nifty moved an average 14 percent in the two days following the results of the last three elections, as the outcomes defied polls' predictions.

Demand for protection against swings in shares is rising as some investors weigh prospects for an election outcome going against predictions. The India VIX, which measures the cost of Nifty options, surged 11.5 percent to 34.38, the highest level since Oct. 5, 2011. The gauge rose 5.7 percent to 30.85 last week for a fourth weekly increase.

Okay, wrong VIX. Why isn't Nate Silver running numbers for the India Electoral College? Oh wait, he switched back to (mostly) sports. Or what about Intrade India odds? That's "Wisdom of the Crowds" at its finest, right? I mean, no way someone could invest a relatively small amount of money to influence the press into some pretend "insights."

Never mind, Intrade doesn't exist anymore.

I guess the masses will have to handicap the Indian elections by good old fashioned poll analysis. And that, apparently, has caused expanded fear of a surprise.

It's a good lesson in the true meaning of implied volatility. It's less directional than most let on. Options prices are based on the market's best estimate of the future volatility of the underlying asset. Since options are commonly used as de facto insurance policies against stock or sector or overall market declines, we tend to directly associate them with fear of implosions. But, we fear volatile market rises, too. It's just in a different way. Yes, there are always dedicated shorts, but the fear is more about underperformance. Upside moves aren't generally as violent as downside moves, so the volatility associated with them is lower -- but it's still there.

Our own VIX tends to average a correlation of negative 0.65 or so. I'm not at all familiar with India VIX behavior, but I'm guessing there's a similar dynamic there (and anywhere, really), so that 0.5 correlation is definitely odd and unusual. I'm also guessing volatility in India in general will overprice risk based on the action Bloomberg notes after previous elections. But, that's just a guess against extreme sentiment, and not something I'm going to try to figure out how to actually play.

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

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Among the stocks attracting attention from options traders lately are IT services provider Cisco Systems, Inc. (NASDAQ:CSCO), global mining company Freeport-McMoRan Copper & Gold Inc. (NYSE:FCX), and streaming music provider Pandora Media Inc (NYSE:P). Below, we'll break down how options buyers are positioning themselves, and how much speculators are willing to pay for their bets on CSCO, FCX, and P.

  • CSCO has moved 8.9% higher over the past month to trade at $23.50; however, it seems option traders have little hope that this uptrend will continue. To be specific, CSCO's 10-day International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) put/call volume ratio of 0.78 ranks in the 83rd annual percentile, demonstrating puts have been bought to open, relative to calls, at an accelerated pace during the past two weeks. Meanwhile, Schaeffer's Volatility Index (SVI) for Cisco Systems, Inc. comes in at 27%, which ranks in the bottom one-third of its 12-month range. This means front-month options are attractively priced, from a volatility point of view.

  • FCX -- which reports first-quarter earnings ahead of tomorrow's opening bell -- has also seen an uptick in bearish betting lately, though the stock seems more deserving of the skepticism, considering it is down 11.2% year-to-date to trade at $33.50. At the ISE, CBOE, and PHLX, Freeport-McMoRan Copper & Gold Inc.'s 10-day put/call volume ratio of 0.63 ranks higher than 89% of comparable readings taken during the past year, showing a faster-than-usual rate of put buying, relative to call buying, of late. Now is an opportune time to place short-term bets on FCX, relatively speaking, as the equity's SVI of 24% ranks in the bottom 19% of its 12-month range.

  • On the other hand, P -- which has fallen more than 10% over the past month to trade at $28.17 -- has seen heavier-than-usual bullish betting, relative to bearish, in its options pits of late, as the stock's 10-day ISE/CBOE/PHLX call/put volume ratio of 1.82 ranks in the 71st annual percentile. Meanwhile, with Pandora Media Inc scheduled to release first-quarter earnings after tomorrow's close, the equity's SVI of 71% ranks in the 65th percentile of its 12-month range, meaning front-month contracts are relatively expensive right now.

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