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Call volume is accelerated on Diamond Foods, Inc. (NASDAQ:DMND) today, as the company prepares to unveil its fiscal third-quarter earnings report after tonight's close. Around 4,550 calls have crossed the tape, or more than 14 times the average intraday volume. By comparison, fewer than 800 puts have changed hands. The lion's share of the activity has centered at the June 17 call, where 3,631 contracts have traded for a volume-weighted average price (VWAP) of $0.64. Almost all of these calls have gone off on the ask side, and volume is easily outstripping open interest, pointing to buy-to-open activity.
Based on the VWAP, the out-of-the-money calls will become profitable with each step north of $17.64 (strike plus VWAP) Diamond Foods takes ahead of the close on Friday, June 21. This breakeven mark sits 5.8% above the stock's current perch at $16.72. Risk, meanwhile, is limited to the initial cash outlay. It appears today's call players were willing to pay up for their bullish bets. Ahead of tonight's scheduled event, implied volatility at this strike has surged 16.4 percentage points today to rest at 71.7%. This level is inflated relative to the stock's 20-day historical (realized) volatility, which sits at 35.9%, suggesting premium is relatively expensive at the moment.
Given the stock's 22% year-to-date advance, it's not shocking to see that calls have had the edge over puts in recent weeks. During the course of the past 20 sessions, traders at the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) have bought to open 5,529 calls, compared to 2,621 puts, resulting in a call/put volume ratio of 2.07.
This pre-earnings call activity is surprising given the stock's track record on the charts following the company's quarterly earnings announcements. Diamond Foods, Inc. (NASDAQ:DMND) has a mixed history in the confessional, besting bottom-line estimates in four of the past seven quarters. However, DMND has averaged a loss of 9.4% and 13.8% in the subsequent day and week following these reports, respectively. For Diamond Foods' fiscal third quarter, Wall Street is calling for a per-share loss of 17 cents.