Schaeffer's Trading Floor Blog

Buzz Stocks: Auspex Pharmaceuticals Inc, FedEx Corporation, and Sony Corp (ADR)

Today's stocks to watch in the news include ASPX, FDX, and SNE

by 12/17/2014 9:04 AM
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Futures are headed higher in electronic trading, ahead of this afternoon's policy statement from the Federal Open Market Committee (FOMC). In company news, today's stocks to watch include drugmaker Auspex Pharmaceuticals Inc (NASDAQ:ASPX), package delivery specialist FedEx Corporation (NYSE:FDX), and electronics guru Sony Corp (ADR) (NYSE:SNE).

  • ASPX is pointed nearly 83% higher ahead of the bell, following a successful late-stage trial on its chorea treatment. By reducing the involuntary movements associated with Huntington's disease -- a condition called chorea -- the drug (SD-809) significantly improved quality of life for patients, and reduced anxiety and depression rates. Moving to the charts, as of yesterday's close at $25.09, Auspex Pharmaceuticals Inc had advanced 67.3% since going public in early February. Not surprisingly, all seven brokerage firms covering the stock rate it a "strong buy," and its consensus 12-month price target of $41.83 sits in uncharted territory. This morning, in fact, a trio of analysts upped their price targets on ASPX -- BMO (to $60), Stifel (to $61), and Ladenburg (to $44) -- while reaffirming the equivalent of "buy" opinions.

  • FDX's fiscal second-quarter earnings rose year-over-year, but fell shy of the Street's consensus estimate. The firm also reiterated its 2015 per-share profit outlook of $8.50 to $9, anticipating benefits from lower fuel costs and moderate economic growth. Following these results, FedEx Corporation is down 3.7% in electronic trading, which would eat into its 21.2% year-to-date lead, based on Tuesday's close at $174.26. Ahead of the quarterly report, traders at the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) had been betting bullishly. FDX's 10-day call/put volume ratio across this trio of exchanges is 1.59, in the 84th percentile of its annual range.

  • Finally, SNE is grabbing headlines this morning, as its movie studio announced it will likely release the anti-North Korea comedy "The Interview," despite opposition from a group of hackers called the Guardians of Peace. However, the New York premiere of the film has been canceled -- allegedly because the Guardians of Peace threatened a cyber attack against the hosting theater. As if that isn't enough, several former Sony Pictures Entertainment employees are now suing the studio for failing to protect their personal data, which was illegally stolen and publicized late last month by the aforementioned hackers. Taking a step back, parent company Sony Corp (ADR) has had a solid 2014, tacking on 14% to rest at $19.72. Nevertheless, the stock's 10-day ISE/CBOE/PHLX put/call volume ratio is docked at an annual high of 2.11, with more than two puts bought to open for every call in the last two weeks.

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The VIX Pop: Bullish On the Margins?

The CBOE Volatility Index (VIX) is trading at two-month highs

by 12/17/2014 8:53 AM
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Want more signs that the volatility market got a bit extended in this latest oil/Russia/Fed scare? I bring you derivatives of derivatives, via Barron's:

"But Mandy Xu, an equity derivatives strategist at Credit Suisse, notes that a complex measure of the excitedness of VIX behavior itself almost tripled last week to near its all-time high. She's looking specifically at the 'implied volatility' of the VIX, which rose to 139 last week from 57.

It's a kind of a Through the Looking-Glass market indicator -- the VIX measures expected swings in the S&P 500, but this other index, the CBOE VVIX Index, tracks prices of options on the volatility index itself. It measures, quite literally, the volatility of volatility.

Sounds like an exercise in navel-gazing, but some see in the sudden ramp in VVIX as a sign that high-yield bonds (selling off for months) and stocks (still near all-time highs) might be about to reconcile their differences. Lots of people spend time trying to squeeze market signals from discrepancies in volatility metrics."

Ah, the CBOE VIX Volatility Index (VVIX), voted the most confusing gauge ever by … well, everyone, if they really voted on such a thing. It proxies the implied volatility of options on the CBOE Volatility Index (VIX) itself. It uses the VIX methodology to index the implied volatility of said options.

VIX options are, of course, options on VIX futures, not VIX itself. Futures themselves virtually always trade at a premium to VIX (except when VIX pops, like this past week). VIX futures options trade at a very steep positive skew -- the higher the strike, the higher the implied volatility. That's another way of saying that the out-of-the-money VIX calls trade very high in implied volatility terms. And that makes perfect sense. The lion's share of order flow in VIX consists of speculation on cheap-dollar VIX calls. There's some speculation. It's a bit of a lottery ticket on VIX pops. And there's some portfolio hedging going on. As Barron's alludes to, perhaps there's hedging going on vs. bond portfolios as well.

So, when VIX goes up, VVIX absolutely explodes. Part of that pop is self-fulfilling. As VIX lifts, higher-vol. VIX strikes carry more weight in the VVIX calculation. But, part of that pop is simply greater demand for VIX paper. And certainly when you see VVIX lift this much this quickly, there's plenty of "real" sentiment expressed in that lift. Of course, it all depends on how you view VIX, and fear in general. If you view it as a contrary tell, then you should view VVIX in the same light. And since I view it through that contrary lens, VVIX is certainly consistent with an already overbought VIX, and bullish on the margins in my humble opinion.

It's important to note that another vol gauge, the iPath S&P 500 VIX Short-Term Futures ETN (VXX), has not gotten quite as extended. Dollar-weighted volume spiked in this latest pop, but it's considerably lower than levels from the October VIX pop. It is higher than July VIX pop levels, though, so we'll call this an "eh." All in all, I'd say the vol complex got extended, but not alarmingly so; modestly bullish on the margins, in my humble opinion.

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

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Analyst Update: Monster Beverage Corp, Google Inc, and Yamana Gold Inc. (USA)

Analysts adjusted their ratings on MNST, GOOGL, and AUY

by 12/16/2014 3:58 PM
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Analysts are weighing in today on drink maker Monster Beverage Corp (NASDAQ:MNST), Internet giant Google Inc (NASDAQ:GOOGL), and commodity concern Yamana Gold Inc. (USA) (NYSE:AUY). Here's a quick look at today's brokerage notes on MNST, GOOGL, and AUY.

  • MNST has added 1.4% today in response to CLSA's price-target hike to $130 from $110 and its upwardly revised "buy" endorsement. The stock is now trading at $106.53, up 50.3% since The Coca-Cola Co (NYSE:KO) bought a significant stake in it in mid-August. The security's run may not be over, as 55% of covering analysts rate it a "hold," leaving room for additional upgrades to boost the shares higher. Plus, Monster Beverage Corp could see more price-target hikes from brokerage firms, as it's nearing its consensus 12-month price target of $111.53.

  • GOOGL's disappointing year continues, as it has lost 3.8% today -- and touched an annual low of $498.23 -- following J.P. Morgan Securities' $70 price-target reduction to $600 from $670. The brokerage firm also cut its revenue and profit estimate for the company's current quarter, as well as the 2015 and 2016 fiscal years, but maintained its "overweight" rating. The stock was last seen at $499.50, down 10% year-to-date. Google Inc could be ripe for more downgrades, too, as 77% of covering firms rate it a "strong buy," with no analyst rating it worse than a "hold." However, GOOGL's 14-day Relative Strength Index (RSI) comes in at 32, nearing oversold territory, meaning a short-term bounce could be in its future.

  • Credit Suisse is apparently not high on gold at the moment, as it downgraded numerous commodity stocks last night, including AUY. The brokerage firm cut it outlook on the equity to "neutral" from "outperform," and reduced its price target by a $1 to $4.50. Yamana Gold Inc. (USA) was last seen down 2.9% at $3.56. If AUY doesn't rebound, it could be the victim of additional analyst downgrades, considering 69% of covering firms rate it a "buy" or better. Such a turnaround seems unlikely, though, as the security has underperformed the broader S&P 500 Index (SPX) by over 44 percentage points in the past three months.

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    Bearish Betting Hits Fever Pitch On 3M Co (MMM)

    3M Co put buying is at peak levels

    by 12/16/2014 1:27 PM
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    It's a big day for blue chips, and 3M Co (NYSE:MMM) is no exception. The stock is up 2.1% to $160.09, after the company offered an upbeat outlook for 2015 sales growth and boosted its dividend by 20%. However, today's surge is likely stinging option traders, who have been upping the bearish ante on MMM in recent weeks.

    Since the start of the month, in fact, MMM's 10-day International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) put/call volume ratio has jumped to 4.51 from 0.88. What's more, the current ratio ranks above all other readings taken in the past year, meanings puts have been bought to open over calls at an annual-high clip.

    On the charts, though, MMM has been making a run higher since taking a sharp bounce off its 320-day moving average in mid-October, tacking on nearly 23%. Plus, the equity hit a fresh record high of $162.92 as recently as Dec. 4. As such, it's possible some of this put buying is attributable to shareholders protecting paper profits against an unexpected pullback.

    Daily Chart of MMM Since October 2014 With 320-Day Moving Average

    Regardless, MMM's short-term options are rather expensive at the moment. The equity's Schaeffer's Volatility Index (SVI) of 21% ranks in the 71st annual percentile, suggesting 3M Co's (NYSE:MMM) near-term options are pricing in lofty volatility expectations.

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    What Should McDonald's Corporation's (MCD) New Menu Look Like?

    McDonald's Corporation is re-examining its menu and ingredients, but what changes should it make?

    by 12/16/2014 11:46 AM
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    McDonald's Corporation's (NYSE:MCD) is stuck. For starters, its stock has been trapped in the $85-$100 range for the better part of three years now, and with its sales numbers just getting worse, the struggles for the world's largest restaurant chain are likely to continue for the foreseeable future. But even more concerning is the fact that the company's products are stuck in the past. The burgers look to be the same ones my parents were eating 30 years ago, and the fries still hold the same salty crunch they've always had.

    The problem is, though the burgers and fries are delicious (I will not entertain an argument on this), consumers these days want something more: healthy, clean food. That is why McDonald's has recently decided to revamp its menu in 2015, by downsizing it, and allowing customers to personalize their food, a la Chipotle Mexican Grill, Inc. (NYSE:CMG). Mike Andres, President of McDonald's USA, even alluded to doing the unthinkable: "Why do we need to have preservatives in our food?" he asked. "We probably don't."

    Well then.

    I don't know about you, but I'm waiting in tense anticipation. In the meantime, I decided to give my take on which McDonald's products should remain on the new menu, which ones definitely shouldn't, and presented some ideas for items they could add to the menu.

    Definitely Should Make the Cut

    McD's said its simplified menu will feature just one Premium Chicken sandwich, and one Quarter Pounder with Cheese option. However, I think these stalwarts should stay:

    • McChicken: This isn't the most glorious item out there, but every legitimate dollar menu needs a simple chicken sandwich. When I'm hungry and in a hurry, this is my go-to. Will it still have my heart if they remove the preservatives, though? Tough to say.

    • Premium Chicken Bacon Clubhouse Sandwich: Nothing with bacon should be removed from the menu. Still, the name of this sandwich could be shortened, as this can cause problems considering McDonald's shaky intercom system. One caveat: you should only be allowed to get it crispy style.

    • Deluxe Quarter Pounder: For when money isn't an issue and you want to roll up your sleeves and just get wild.

    Should be Removed Immediately

    • Jalapeno Double: Not even a jalapeno single. No jalapenos. No.

    • Mac Snack Wrap: We're just better than this as a society, plain and simple. Fortunately, McDonald's said it plans to offer just one Snack Wrap on the trimmed-down menu, compared to three.

    • Filet-O-Fish: This decision is purely based on the fact that if the product goes, the advertisements will be gone as well. Plus, fish from McDonald's -- even at the "new" McDonald's -- doesn't sit right with me. Honestly, I don't trust fish from any restaurant that is not adjacent to a body of water.

    • McRib: "It's baaaaack!" Again and again, McDonald's plays this game where it takes the McRib off the market, then celebrates its return like it's not a piece of cardboard masked in barbeque sauce. Since this thing just keeps coming back, someone out there must buy it. Whoever you are, I will find you.

    Should be Added Immediately

    • Monster McRings: Burger King has onion rings that I enjoy immensely. This may be a path McDonald's wants to consider. For some reason, I envision McDonald's onion rings as massive rings, like six inches in circumference. Why? I have no idea.

    • Chile McFlurry: I've always felt that there were not enough McFlurry options. The Chile McFlurry would be a double-edged sword for McDonald's; not only would it provide customers with a new, tasty treat, but it would also serve as a way to use any leftover hamburger meat. There is potential for a parfait spin-off, as well.

    • Breakfast Big Mac: A Big Mac with pancakes for buns. You can order this regardless of the time of day. Add syrup for an extra $0.50 -- and kick Yum! Brands, Inc.'s (NYSE:YUM) Taco Bell breakfast renaissance in the teeth.

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