Schaeffer's Trading Floor Blog

Will Recent Earnings History Impact Amazon.com and Broadcom?

What do option traders expect for AMZN and BRCM?

by 1/29/2013 7:51 AM
Stocks quoted in this article:

Did anybody say "earnings?" Had some excitement last week in a couple of the names we highlighted.

Unless you live in a cave, you probably heard that Apple Inc. (NASDAQ:AAPL) got slammed on the report. It opened down 10.5%, almost double the move suggested by the options volatility bid-up. On the flip side, Netflix, Inc. (NASDAQ:NFLX) opened up a whopping 40%, almost four times the implied move. Interestingly, both moved in opposition to their order flow. AAPL had seen call open interest spike into stock weakness, while NFLX saw put open interest lift into strength.

It's all significant going forward, in that these are two high-profile names that shook up the option sellers. So, one would expect that to lift bids in other names going forward.

Are we seeing that? Eh.

Amazon.com, Inc. (NASDAQ:AMZN) reports after the bell tonight. It's had some big moves in the past, though nothing special the last couple of quarters. It closed up 8% on the day after July earnings, but that was predominantly an intraday move as it opened up only 2%. October saw similar action, albeit with a modestly smaller gap up and then subsequent rally.

This go-round, the options are pricing in about an 8% move, pretty middling for AMZN. Put open interest is relatively high vs. call open interest, at about 1.2, which in theory, would be a red flag in an up name like Amazon. In reality, though, that ratio has trended down lately from highs near 1.5, and the overall size of the open interest has ticked down lately as well, even factoring in the recent January expiration.

The overall picture here looks pretty unexceptional. If the last two quarters (and AAPL and NFLX, for that matter) are the guide, the past play is probably to come in flat and then trade with the move and try to catch some momentum.

One-time tech-bubble darling Broadcom Corporation (NASDAQ:BRCM) also reports after the bell. It's not exactly the monster of yesteryear, though. The stock's in a very tepid uptrend of late. The options anticipate about a 5% move on the number. That's about in line with the 3% move last quarter and the 6% move in July.

The put/call open interest ratio is near the yearly lows, but with the stock relatively strong, that's not terribly noteworthy. Kind of amazing, but this whole picture makes BRCM look like a utility or something.

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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