Schaeffer's Trading Floor Blog

Earnings Season Predictions: Two Major Banks and a Reinvigorated Tech Name

EBAY, JPM, and GS report earnings this week - what moves are the options markets predicting?

by 1/15/2013 7:44 AM
Stocks quoted in this article:

We get our first big chunk of earnings reports this week.

What's the options board telling us, you ask?

Well, glad you asked.

eBay Inc (NASDAQ:EBAY - 53.18) doesn't get enormous publicity these days, at least compared to its notoriety back in the tech bubble days. But the stock has acted quite well, recently hitting levels not seen since February 2005. That was so long ago, Tom Brady was still quarterbacking the Patriots in a Super Bowl okay, bad example.

It was so long ago, the iPhone didn't exist yet.

Anyway, EBAY reports tomorrow after the bell. The options board is looking for a move of 5.5% or so. The stock had somewhat interesting earnings action last go-around, doing basically nothing on the initial news, but then rallying 5% within the trading day. In the July cycle, EBAY gapped up 8% on earnings.

The modestly out-of-the-money (OTM) January 2013 55-strike calls have the biggest open interest in the nearby options board, checking in at 32,000 outstanding. If I have one rule in earnings season, it's that names tend to move in the same direction they're already moving, so I certainly see the sense behind some call speculation. Of course, the strike may turn into a sort of Max Pain magnet if EBAY gets up near the strike price.

Dueling Vampire Squids I mean Wall Street giants JP Morgan Chase & Co. (NYSE:JPM - 45.88) and Goldman Sachs Group, Inc. (NYSE:GS - 136.13) report pre-market tomorrow. My screen's not picking up an earnings number for Goldman, which generally means the volatility spread isn't significant enough to "predict" a gap. This doesn't mean it won't gap, only that the options market expects a small one. The January contracts do trade about 10 volatility points over February (and it will lift more today), but that number is not high, considering they expire on Friday. There's no particularly high open interest nearby, either.

Not much is expected from JPM, either. The options board projects a 2.5% move on earnings. Neither GS nor JPM reacted much to earnings in the last couple of cycles. JPM's 2.5% move in July was the biggest move.

Just to review our names from last week, Apollo Group Inc (NASDAQ:APOL - 19.32) gapped down 8.5%, almost perfectly in line with the options estimate of 9%. Monsanto Company (NYSE:MON - 100.59) also did pretty much as expected, with a gap up of 3.5% vs. "predictions" for 3%.

Disclaimer: The views represented on this blog are those of the individual author's only, and do not necessarily represent the views of Schaeffer's Investment Research.

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