Schaeffer's Trading Floor Blog

Analyst Downgrades: Activision Blizzard, Inc., Ford Motor Company, and Google Inc

Analysts downwardly revised their ratings on ATVI, F, and GOOGL

by 10/27/2014 9:31 AM
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Analysts are weighing in today on video game maker Activision Blizzard, Inc. (NASDAQ:ATVI), automaker Ford Motor Company (NYSE:F), and online search giant Google Inc (NASDAQ:GOOGL). Here's a quick roundup of today's bearish brokerage notes on ATVI, F, and GOOGL.

  • Brean Capital trimmed its price target on ATVI to $25 from $26, but maintained its "buy" rating. On the charts, the shares have advanced a respectable 7.5% year-to-date to trade at $19.17. Meanwhile, at the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), traders have bought to open nearly 10 Activision Blizzard, Inc. calls for every put during the past two weeks. The resultant 10-day call/put volume ratio across this trio of exchanges is 9.77, in the 84th percentile of its annual range.

  • F, which is reportedly prepared to inject more than $5 billion into resurrecting its Lincoln brand, got hit with another pair of bearish brokerage notes this morning. Specifically, Deutsche Bank cut its price target on the stock to $16 from $18 (while maintaining its "buy" rating), and Credit Suisse slashed its outlook to $13.50 from $15.50 (while maintaining its "neutral" assessment). On the charts, shares of Ford Motor Company are off nearly 22% year-over-year at $13.78, and hit a fresh annual low of $13.26 earlier this month. Nevertheless, Wall Street is evenly split on the security. Half of the 14 analysts covering F have doled out a "buy" or better endorsement, while the rest have handed out either a "hold" or "strong sell" opinion.

  • Finally, Monness Crespi Hardt initiated coverage on GOOGL with a "neutral" rating and $605 price target -- representing expected upside of 10.2% from Friday's close at $548.90. Taking a step back, the shares are sitting about 2% south of year-to-date breakeven. That said, it wouldn't be surprising to see the brokerage bunch continue to shift gears on Google Inc, via a round of downgrades and/or price-target cuts. Twenty-seven out of the 30 analysts following the stock have given it a "buy" or better rating, compared to a trio of "holds" and not a single "sell" recommendation. What's more, the stock's consensus 12-month price target of $652.91 stands in territory yet to be explored by GOOGL.

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Buzz Stocks: Allergan, Inc., Sarepta Therapeutics Inc, and, Inc.

Today's stocks to watch include AGN, SRPT, and AMZN

by 10/27/2014 9:15 AM
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Futures are pointed modestly lower ahead of the bell, as traders wait to digest the latest round of quarterly earnings reports. Among specific equities in focus are drug makers Allergan, Inc. (NYSE:AGN) and Sarepta Therapeutics Inc (NASDAQ:SRPT), as well as e-commerce giant, Inc. (NASDAQ:AMZN).

  • AGN is pointed higher in pre-market action, after posting better-than-expected third-quarter earnings results, and lifting its full-year forecast. Separately, Valeant Pharmaceuticals Intl Inc (NYSE:VRX) said it is once again boosting its takeover bid for Allergan, Inc., this time by nearly 14%, to $200 per share. On the charts, AGN has had a standout year, tacking on almost 66% to trade at $184.21. In the options pits, meanwhile, short-term speculators have shown a distinct preference for puts over calls, as evidenced by the stock's Schaeffer's put/call open interest ratio (SOIR) of 1.93, which ranks just 2 percentage points from a 52-week peak.

  • SRPT is bracing for a 37% plunge right out of the gate, after saying it will delay the filing for approval of its muscular dystrophy drug Eteplirsen until mid-2015 after the Food and Drug Administration (FDA) requested more information. It's been a roller-coaster ride for SRPT in 2014, with the shares closing Friday at $23.56 -- 15.7% above their year-to-date breakeven line. Today's projected price move could please one group of traders, though -- short sellers. At present, nearly 36% of the stock's float is sold short, and would take almost 14 sessions to cover, at Sarepta Therapeutics Inc's average daily pace of trading. Based on the equity's 10-day International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) call/put volume ratio of 36.54 -- which ranks in the highest percentile of its annual range -- a few of these shorts may be hedging their bearish bets with long calls.

  • A labor union is encouraging workers at five AMZN locations in Germany to strike, due to labor conditions and pay disputes. It's been a rough go both on and off the charts for the, Inc., and today, the stock is positioned to extend Friday's earnings-induced drop. In spite of AMZN's recent fundamental and technical struggles, most analysts remain optimistic. In fact, 19 out of 28 covering the security maintain a "buy" or better rating, with not a single "sell" to be found. Plus, the consensus 12-month price target of $356.94 stands at a 24.3% premium to the equity's current perch at $287.06.

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What We Can Learn from Recent Volatility

Examining the CBOE Volatility Index (VIX) futures term structure after a roller-coaster ride

by 10/27/2014 9:03 AM
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In the last few weeks, we've seen the CBOE Volatility Index (VIX) pretty much double, and then halve. We've seen the markets implode (well, not really implode, but drop a bit) and then retrace to where we're only a few percentage points away from new highs.

There was a great trade riding the long side of volatility ETFs -- and then an even quicker great trade the other way. So, what's next? Well, I can't really tell you the direction. If I could tell anyone, I'd keep it to myself. Odds always favor the long-term trend persisting. Everyone loves to call major turns, but it's generally not the best strategy for actual investing.

In the options world, it's still an interesting backdrop. The VIX futures term structure is back to the good old days of expecting higher volatility tomorrow (click chart to enlarge):

VIX Futures Term Structure

What's noteworthy is that the nearer-term curve is pretty flat. That, of course, bodes well for the iPath S&P 500 VIX Short-Term Futures ETN (VXX), or at least un-bad. With no contango drag, it's a bit easier to hang with VIX moves.

Out in time, there's still premium. And, that extends to actual options, as well. This, from Steven Sears' The Striking Price column (subscription required):

While the S&P 500 rebounded quite nicely last week, at one point rising some 6% from the previous week's intraday low, its 90-day implied volatility is near two-year annual highs. This reflects anticipation of a sharp move. Unfortunately, volatility doesn't reveal direction, but every investor tends to have a view on what's ahead for his or her stocks.

Chris Jacobson, Susquehanna Financial Group's derivatives strategist, suggests taking advantage of options' heightened prices, which indicate widespread fear, by selling calls against positions. "For investors who believe a dramatic further move higher into year-end is unlikely, the increase in volatility can provide for attractive overwriting opportunities against an entire position, or a portion of a position," Jacobson recently advised clients.

I would totally agree. If you're of the mindset to sell inflated volatility, it's better to go further in time even, if it means you maybe get a lesser implied volatility than if you went nearer-term in the options.

Ultimately, the success of the trade isn't about the absolute price you get for the options. Rather, it's about whether the implied volatility you got was enough to compensate you for the realized volatility of the underlying. And, in the very near term, we're still in a bit of a volatility wave. Three months out, though? No way to know for sure, but it's likely volatility abates between now and then. I'd rather take that chance then try to guess right now when volatility tamps down.

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

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Analyst Upgrades: eBay Inc, Facebook Inc (FB), and Southwest Airlines Co

Analysts upwardly revised their ratings on EBAY, FB, and LUV

by 10/27/2014 9:00 AM
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Analysts are weighing in today on online auction house eBay Inc (NASDAQ:EBAY), social network Facebook Inc (NASDAQ:FB), and aviation concern Southwest Airlines Co (NYSE:LUV). Here's a quick roundup of today's bullish brokerage notes on EBAY, FB, and LUV.

  • Monness Crespi Hardt initiated coverage on EBAY with a "buy" rating, despite the equity's 6.8% year-to-date loss. Technically speaking, the shares closed Friday at $51.12, and recently hit a two-year low of $46.34 after reporting lackluster earnings. In the options pits, short-term traders have been more put-focused than usual toward eBay Inc. The stock's Schaeffer's put/call open interest ratio (SOIR) of 0.73 ranks just 8 percentage points shy of a 52-week peak.

  • FB, which releases its highly anticipated earnings report tomorrow night, was also initiated at Monness Crespi Hardt with a "buy" recommendation, as well as a $95 price target. This outlook would represent a record high for the shares, which have tacked on nearly 48% year-to-date to trade at $80.67. Given such technical tenacity, it's no surprise Wall Street is bullishly aligned toward Facebook Inc. In fact, 29 out of 32 covering analysts have given the equity a "buy" or better rating, versus just three "holds" and not a single "sell" opinion.

  • Finally, LUV saw its price target raised to $37 from $32 at Credit Suisse, despite the brokerage firm maintaining its "neutral" assessment of the stock. On the charts, the shares have soared roughly 80% since the start of 2014 to rest at $33.87, and have outperformed the broader S&P 500 Index (SPX) by 16.7 percentage points over the last three months. In the options pits, traders are either betting on -- or hedging against -- downside in Southwest Airlines Co. Specifically, the security's 50-day International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) put/call volume ratio of 0.40 sits higher than 80% of comparable readings from the past year. In other words, speculators have been buying to open LUV puts over calls at a faster-than-usual clip in recent months.

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Analyst Update: Alibaba Group Holding Ltd, IBM Corp., and Under Armour Inc

Analysts adjusted their ratings on BABA, IBM, and UA

by 10/24/2014 1:45 PM
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Analysts are weighing in today on e-commerce site Alibaba Group Holding Ltd (NYSE:BABA), blue chip International Business Machines Corp. (NYSE:IBM), and athletic apparel company Under Armour Inc (NYSE:UA). Here's a quick look at today's brokerage notes on BABA, IBM, and UA.

  • BABA has rallied 2.5% to $96.81, boosted by an "outperform" initiation and $110 price target at BMO. This positive analyst attention is par for the course for the Wall Street newcomer. All six brokerage firms covering Alibaba Group Holding Ltd have assigned it a "strong buy" rating. What's more, just 2.1% of BABA's float is sold short, which would take less than one session to buy back, at the equity's typical daily trading volumes.

  • IBM is off 0.3% at $161.67, following a price-target cut to $180 from $190 at Cowen -- which also reiterated its "market perform" assessment. This is just the latest in a series of bearish brokerage notes doled out on the shares since the company's disappointing earnings report earlier this week. Technically, International Business Machines Corp. is now sitting on a year-to-date loss of 13.8%, and has underperformed the broader S&P 500 Index (SPX) by more than 13 percentage points over the last month. As alluded to, the Street is decisively skeptical of the tech stock. IBM has received just four "buy" or better ratings from analysts, relative to 14 "hold" or worse ratings. Plus, the stock's consensus 12-month price target of $170.57 stands at a slim 5.5% premium to current trading levels.

  • UA is down 0.5% this afternoon at $64.04 -- but remains nearly 47% higher year-to-date -- after the latest round of analyst updates. Specifically, Goldman Sachs and Keybanc boosted their respective price targets to $62 (from $60) and $45 (from $41), respectively, while maintaining their "neutral" and "underweight" ratings. On the flip side, UBS cut its outlook to $68 from $70, while highlighting its "neutral" assessment of the shares. Taking a step back, there's plenty of room for Under Armour Inc to benefit from additional bullish brokerage notes. Twelve out of the 23 analysts covering the equity have handed out "hold" or worse ratings. Plus, UA's consensus 12-month price target of $70.60 stands just 10% above the current share price.

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