Earnings Preview: Netflix, Inc., Bank of America Corp, and International Business Machines Corp.

Netflix, Inc. (NASDAQ:NFLX), Bank of America Corp (NYSE:BAC), and International Business Machines Corp. (NYSE:IBM) will unveil earnings on Tuesday

Josh Selway

Jan 15, 2016 at 1:13 PM

As the market continues to get hammered, traders will look for earnings season to offer a respite -- as evidenced by one big bank's results yesterday. Getting ready to report earnings on Tuesday are streaming media giant Netflix, Inc. (NASDAQ:NFLX), banking titan Bank of America Corp (NYSE:BAC), and tech firm International Business Machines Corp. (NYSE:IBM). Below, we'll take the pre-earnings temperature on NFLX, BAC, and IBM.

NFLX has been known to make some outsized post-earnings moves. Looking back eight quarters, the stock has averaged a swing of almost 14% in the session after it reports. And ahead of Tuesday night's event, the options market is pricing in almost the same exact move, according to NFLX's near-term at-the-money (ATM) straddle data. It seems most are speculating on an upside move from the shares. The stock's 10-day call/put volume ratio at the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) comes in at 1.37, which tops 89% of all other readings from the past year.

Looking to the charts, it's well known Netflix, Inc. was one of the top performing stocks in 2015. And even though the shares have been hit by broad-market headwinds -- down 3.8% today at $102.97 -- they appear to have found support in the form of their 200-day moving average. The last two times NFLX approached this trendline, it's averaged a 4.7% gain over the following 21-day stretch.

BAC hit a two-year low of $14.13 earlier, and was off 4.3% at $14.33 at last glance. Since the shares touched a five-year high of $18.48 in July, they've fallen 22.5%. Despite this, short-term traders have taken an unusually call-biased stance, since BAC's Schaeffer's put/call open interest ratio (SOIR) comes in at 0.56. Not only does this mean call open interest among options that expire three months or less heavily outweighs put open interest, but the SOIR sits below 92% of all other readings from the past year.

In preparation of Tuesday morning's earnings unveil, the options market is pricing in a 6.5% swing for the stock, according to its straddle data. This is notably higher than Bank of America Corp's average post-earnings move of 2.6% during the past eight quarters. Over the past 10 days, the February 17 call has added the most open interest of all options, though data from the major option exchanges suggests much of the action at this strike was of the sell-to-open variety. In other words, traders are expecting BAC to hold below $17 through February option expiration.

Since its October high of $153.15, IBM has dropped over 15%, including a 2.8% loss today to put the shares at $129.16 -- just off the five-year low of $128.87 they touched earlier in the session. Making matters worse, the stock has closed lower in sessions following its earnings releases in seven of its last eight attempts. That may be why traders are likely buying to open the February 130 put today -- IBM's most popular contract -- ahead of Tuesday night's quarterly report. RBC apparently doesn't have high expectations either, as the brokerage firm this morning cut its price target to $145 from $150. In other news, International Business Machines Corp. just bought IRIS Analytics, a fraud detection company.

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