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MEMC Electronic Materials, Inc. Traders Brace for an Earnings Miss

WFR is scheduled to release its quarterly results on Thursday morning

by 5/8/2013 12:08 PM
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Option players have been upping the bearish ante on MEMC Electronic Materials, Inc. (NYSE:WFR), ahead of tomorrow morning's turn at the earnings plate. At the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), the stock's 10-day put/call volume ratio of 0.41 ranks higher than 72% of similar readings taken in the past year, suggesting puts have been bought to open over calls at a faster-than-usual clip in recent weeks. For comparison's sake, this ratio stood at 0.06 one month ago.

Echoing this developing trend is the stock's Schaeffer's put/call open interest ratio (SOIR). Since April 22, WFR's SOIR has risen to 0.52 from 0.29, as near-term put open interest surged north of 258%. This ratio ranks in the 82nd percentile of its annual range, suggesting short-term speculators are more put-heavy than usual toward MEMC Electronic Materials.

In the front-month series of options, this has translated into heavy put open interest at the May 5 strike, where 1,868 contracts reside. The majority of these positions have been bought to open, meaning MEMC Electronic Materials must fall more than 5.7% from its current price at $5.30 in order for these puts to be in the money.

It's more of a mixed bag outside of the options pits, though. Short interest accounts for 8% of the stock's available float, but it would take less than three days to cover these shares, at WFR's average daily pace of trading.

Elsewhere, the stock maintains nine "buy" or better ratings, compared to nine "holds," and not a single "sell," according to Thomson Reuters. Meanwhile, the consensus 12-month price target of $6.22 represents a 17.4% premium to present trading levels.

On the charts, WFR has put on a solid show, with the stock up more than 65% year-to-date. The equity briefly pulled back after tagging an annual high of $5.70 in late February, but bounced from support at its 20-week moving average.

Given WFR's upward momentum, the increase in put activity could be representative of shareholders picking up some portfolio protection in case of an earnings miss. As mentioned, the company will unveil its report ahead of the bell tomorrow. While MEMC Electronic Materials, Inc. (NYSE:WFR) has exceeded profit estimates in four of the last seven quarters, the price action following the reports paints a dismal picture. In the subsequent day and week after the results, the stock has averaged a loss of 5.5% and 6.7%, respectively. For WFR's first quarter, Wall Street is calling for a per-share loss of 14 cents -- much slimmer than its year-ago loss of 26 cents per share.


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