Schaeffer's Trading Floor Blog

Pessimism Builds On Apple Inc. (AAPL) Ahead of Earnings

Apple Inc. will unveil its quarterly earnings results after tomorrow's close

by 4/22/2014 9:31 AM
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Earnings season has kicked into high gear, with roughly one-third of companies in the S&P 500 Index (SPX) reporting this week. Tech titan Apple Inc. (NASDAQ:AAPL) is one of those names, and ahead of tomorrow night's scheduled event, option traders have been bearishly aligning themselves as they brace for another poorly received report.

At the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), for example, the stock's 10-day put/call volume ratio of 0.77 ranks higher than all other readings taken in the past year. Simply stated, puts have been bought to open over calls at an annual-high clip in recent weeks.

In a similar vein, AAPL's Schaeffer's put/call open interest ratio (SOIR) of 0.96 also ranks in the top percentile of its annual range. In other words, short-term speculators are more put-heavy now than at any other time during the past 12 months.

On Monday, put players targeted the May 520 strike, where 4,076 contracts changed hands. However, the volume was split on both the bid and the ask sides, meaning this put saw a mix of selling and buying activity, respectively. Open interest rose overnight, confirming the addition of new positions, and data from the ISE corroborated that both short and long positions were initiated.

By selling to open the puts, speculators believe AAPL will maintain its perch atop $520 through the close on Friday, May 16, when front-month options expire. Conversely, by buying to open the puts, the expectation is for Apple to surrender its footing atop the strike price -- a scenario witnessed as recently as last Thursday.

In any event, premium on AAPL's short-term options is relatively inexpensive at the moment, despite an earnings report looming on the horizon. In fact, the equity's Schaeffer's Volatility Index (SVI) of 24% ranks lower than 71% of similar readings taken over the past 12 months. Plus, the security's Schaeffer's Volatility Scorecard (SVS) reading of 76 suggests AAPL tends to make oversized moves, relative to what the options market has priced in.

Outside of the options pits, sentiment is split -- although it leans toward the bullish side. Among the brokerage bunch, no fewer than 28 covering analysts have levied a "buy" or "strong buy" recommendation toward AAPL, compared to nine "holds," and not a single "sell." Meanwhile, the consensus 12-month price target of $594.39 stands at a nearly 12% premium to the equity's current perch at $531.17.

Elsewhere, short interest jumped 7.5% in the latest reporting period, but still only accounts for 2.5% of AAPL's available float. It would take less than three sessions to cover these shorted shares, at AAPL's average daily pace of trading.

If history is any indicator, Apple's post-earnings price action favors option bears. Although Apple Inc. (NASDAQ:AAPL) has bested analysts' bottom-line estimates in six of the past eight quarters, the stock has shed an average of 1.8% in the subsequent session. What's more, following its last turn in the confessional in late January, the equity surrendered 8% the day after reporting. For AAPL's fiscal second quarter, Wall Street has forecast a per-share profit of $10.18 -- a 9-cent improvement over the company's year-ago results.


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Analysts are weighing in today on technology guru International Business Machines Corp. (NYSE:IBM), solar power concern Trina Solar Limited (ADR) (NYSE:TSL), and biopharmaceutical firm Gilead Sciences, Inc. (NASDAQ:GILD). Here's a quick roundup of today's bearish brokerage notes.

  • Although IBM is up more than 11% from its Feb. 4 closing price of $172.84 to perch at $192.27, SocGen lowered its price target on the stock to $200 from $205 this morning. For comparison, the average 12-month price target among analysts is $193.71, which is just a stone's throw away from IBM's current price. Meanwhile, ratings-wise, International Business Machines Corp. maintains 12 "hold" suggestions, compared to four "strong buy" endorsements. If IBM continues its journey north, the bears on Wall Street may reconsider their skeptical positions on the stock, which could ultimately create some technical tailwinds.

  • TSL -- which is down 11.8% year-to-date to trade at $12.06 -- received a price-target cut to $22 from $24 at Nomura this morning. In the options pits, Trina Solar Limited (ADR) has been popular with short-term call players, as the equity's Schaeffer's put/call open interest ratio (SOIR) of 0.37 ranks in the bottom 15% of its 12-month range. In other words, call open interest (relative to put open interest) is much heavier than usual among TSL options expiring within the next three months.

  • GILD -- which enters the earnings confessional after today's close -- saw its price target dropped to $82 from $85 at Jefferies, despite news that the FDA approved two of the firm's New Drug Applications. On the charts, Gilead Sciences, Inc. is sitting 4.7% below its year-to-date flat line, at $71.60; however, 18 of the 19 covering analysts maintain "buy" or better endorsements on the stock. What's more, the consensus 12-month price target of $97.67 represents a 36.4% premium to GILD's current perch.

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Analyst Upgrades: Facebook Inc (FB), Netflix, Inc., and SunPower Corporation

Analysts upwardly revised their ratings on FB, NFLX, and SPWR

by 4/22/2014 9:20 AM
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Analysts are weighing in today on social media giant Facebook Inc (NASDAQ:FB), streaming entertainment provider Netflix, Inc. (NASDAQ:NFLX), and solar power concern SunPower Corporation (NASDAQ:SPWR). Here's a quick roundup of today's bullish brokerage notes.

  • Credit Suisse upgraded FB to "outperform" from "neutral," and lifted its price target to $87 from $65, ahead of the social media company's first-quarter earnings report tomorrow evening. In the options pits, meanwhile, speculators have upped the bearish ante on Facebook Inc, which is sitting 15.6% below its March 11 record high of $72.59 to trade at $61.24. The equity's 50-day International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) put/call volume ratio of 0.48 ranks just 3 percentage points from a 12-month peak, indicating puts have been bought to open, relative to calls, at a near-annual-high rate during the past 10 weeks.

  • Nearly a dozen brokerage firms weighed in on NFLX this morning, after the company reported upbeat first-quarter earnings results following last night's closing bell. Evercore and BMO were among the bullish crowd on Wall Street, upping their price targets to $400 from $350 and $370, respectively; plus Raymond James raised its rating to "outperform" from "market perform." (CRT Capital, meanwhile, lowered its price target by $20.) Although Netflix, Inc. has shed 23.9% from its March 6 all-time high of $458.00 to trade at $348.49, option traders have placed bullish bets over bearish at a near-extreme pace during the past two weeks. This is evidenced by the fact that the equity's 10-day ISE/CBOE/PHLX call/put volume ratio of 1.35 ranks higher than 99% of comparable readings taken during the past 12 months.

  • Brean Capital initiated coverage on SPWR with a "buy" rating and a price target of $32, just in time for the solar power company's first-quarter earnings report Thursday evening. On the charts, SunPower Corporation's short-term performance fares similarly to FB's and NFLX's, as the shares are currently down 25.9% from their March 5 five-year high of $37.14 to trade at $27.52. As such, option traders have shown a greater-than-usual preference for long puts (relative to calls) recently, as the stock's 10-day ISE/CBOE/PHLX put/call volume ratio of 0.62 ranks in the 92nd percentile of its annual range.

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Buzz Stocks: Tesla Motors Inc (TSLA), Novartis AG (ADR), Allergan, Inc., and Pfizer Inc.

Today's stocks to watch in the news include TSLA, NVS, AGN, and PFE

by 4/22/2014 9:11 AM
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The major market indexes are bobbing around breakeven this morning, as investors await the latest existing home sales data. In company news, here are some stocks to watch today:

  • Tesla Motors Inc (NASDAQ:TSLA) delivered its first cars to China yesterday. CEO Elon Musk, who was on hand for the launch event, also announced plans to manufacture vehicles in China within the next three to four years, and build a nationwide battery charging network by next year. (CNNMoney)

  • Novartis AG (ADR) (NYSE:NVS) agreed to buy GlaxoSmithKline plc's (ADR) (NYSE:GSK) cancer drugs for up to $16 billion, and sell most of its vaccines division to GSK for $7.1 billion. Additionally, NVS reached an agreement to sell its animal-health business to Eli Lilly and Co (NYSE:LLY) for $5.4 billion. (Bloomberg)

  • Valeant Pharmaceuticals Intl Inc (NYSE:VRX) has partnered with Bill Ackman's Pershing Square Capital Management LP in a bid to buy Botox maker Allergan, Inc. (NYSE:AGN). The $45 billion deal offers to pay $48.30 in cash and 0.83 shares of VRX common stock for each AGN share -- giving Allergan shareholders a 43% stake in the combined pharmaceutical company. (Associated Press, via ABC News)

  • Pfizer Inc. (NYSE:PFE) will pay $190 million to settle a class action lawsuit that charged the pharmaceutical giant with unnecessarily delaying the release of generic versions of the epilepsy treatment Neurontin. Measures PFE allegedly took in order to stall manufacturing of generics include promoting the drug for unapproved applications, and filing fraudulent patent infringement lawsuits. (Reuters)

  • Also, McDonald's Corporation (NYSE:MCD), Travelers Companies Inc (NYSE:TRV), Lockheed Martin Corporation (NYSE:LMT), and Netflix, Inc. (NASDAQ:NFLX) reported quarterly earnings. (CNBC; Reuters; Bloomberg Businessweek)

  • Finally, PepsiCo, Inc.'s (NYSE:PEP) Frito-Lay is selling three mystery flavors of Doritos chips to gauge public interest in the potential new offerings. The packages don't provide any hints of how the chips taste, and can be differentiated only by the label color (blue, red, and yellow) and a generic test flavor number. (Consumerist)


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Options Check-Up: Intel Corporation, Herbalife Ltd., and AK Steel Holding Corporation

Analyzing recent option activity for INTC, HLF, and AKS

by 4/21/2014 5:02 PM
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Among the stocks attracting attention from options traders lately are technology guru Intel Corporation (NASDAQ:INTC), nutritional supplements provider Herbalife Ltd. (NYSE:HLF), and steel producer AK Steel Holding Corporation (NYSE:AKS). Below, we'll break down how options buyers are positioning themselves, and how much speculators are willing to pay for their bets on INTC, HLF, and AKS .

  • While INTC has been exploring annual-high territory recently -- peaking at $27.24 last Wednesday, before settling at $26.95 at today's close -- the stock's options players have been upping the bearish ante. To be specific, Intel Corporation's 10-day International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) put/call volume ratio of 1.16 ranks higher than 95% of comparable readings from the past year, demonstrating a near-extreme pace of put buying, relative to call buying, during the past two weeks. Furthermore, INTC's Schaeffer's Volatility Index (SVI) of 17% ranks just 7 percentage points from a 12-month low, indicating the equity's short-term options can be purchased at a bargain right now, from a volatility point of view.

  • HLF options traders have also been buying to open puts over calls at a near-annual-high rate recently, as the stock's 10-day ISE/CBOE/PHLX put/call volume ratio of 1.55 ranks just 2 percentage points from a 12-month peak. Herbalife Ltd.'s short-term options aren't as attractively priced, however. The equity's SVI of 69% ranks in the 54th annual percentile, meaning these contracts are a tad more expensive than usual, relatively speaking. Meanwhile, on the charts, HLF shares are sitting 27.6% lower year-to-date to trade at $56.99.

  • Finally, AKS -- which is down about 18% year-to-date to trade at $6.71 -- has seen an accelerated amount of bullish activity (relative to bearish) in its options pits, ahead of the company's first-quarter earnings report tomorrow morning. To be specific, the equity sports a lofty 50-day ISE/CBOE/PHLX call/put volume ratio of 5.29, which ranks higher than 94% of similar readings taken during the past 12 months. Perhaps some of this heavy call activity has been the work of short sellers hedging against potential upside for the shares, considering short interest accounts for nearly one-third of the stock's float. Regardless of motive, those looking to pick up short-term options on AK Steel Holding Corporation right now can do so at a relative discount, as the stock's SVI of 59% ranks in the 39th percentile of its annual range.

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