Earnings Preview: eBay, General Motors, Caterpillar

Analyzing recent option activity on eBay Inc (EBAY), General Motors Corporation (GM), and Caterpillar Inc. (CAT)

Apr 22, 2015 at 2:25 PM
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Among the stocks gearing up to report earnings are online auction specialist eBay Inc (NASDAQ:EBAY), automobile manufacturer General Motors Company (NYSE:GM), and blue-chip industrial issue Caterpillar Inc. (NYSE:CAT). Below, we'll take the pre-earnings temperature of EBAY, GM, and CAT.

  • EBAY has taken a dip of late, with the shares down 6.6% since notching an all-time high of $60.93 on March 9 to rest near $56.88. However, traders have shown a distinct preference for calls over puts in the options pits ahead of tonight's earnings release. Specifically, eBay Inc's 50-day International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) call/put volume ratio of 3.02 stands higher than 88% of all similar readings from the past 12 months. Traders hoping for post-earnings upside have history against them -- in the session immediately following its last four earnings reports, EBAY has lost an average of 0.5% -- although the shares did gain 7.1% in the session after its last earnings release in January. Traders are paying historically fair prices for their near-term bets on EBAY, as its Schaeffer's Volatility Index (SVI) of 27% ranks in the 56th percentile of its annual range. 
  • GM, which will step into the earnings confessional tomorrow morning, has been trending upwards, with the shares up 28.5% from their Oct. 15 annual low of $28.82 to hover at around $37.05. However, short-term puts are more prominent than usual, as General Motors Company's Schaeffer's put/call open interest ratio (SOIR) of 0.85 stands higher than 90% of all equivalent readings from the past year. Simply stated, short-term traders have rarely been this put-skewed over the past 12 months. On the earnings front, GM enjoyed a single-session post-earnings pop of 5.4% in February. Traders are paying historically inflated prices for their near-term bets on GM, as its 30-day at-the-money implied volatility (IV) of 23.2% ranks in the 62nd percentile of its annual range.
  • On the other hand, CAT has struggled recently, with the shares down 8% year-to-date to linger near $84.26. What's more, the shares of Caterpillar Inc. notched a three-year low of $78.19 on March 13, with recent rebound attempts stalling in the $85 neighborhood. Options traders have kept the faith, though, ahead of CAT's trip to the earnings spotlight tomorrow morning. Drilling down, CAT's 10-day ISE/CBOE/PHLX call/put volume ratio of 1.29 ranks in the 91st percentile of its annual range.  Meanwhile, in the session immediately following its last eight earnings reports, CAT has lost an average of 0.9%, including a 7.2% drop in January. Short-term options are available for relatively elevated prices, as CAT's SVI of 27% is higher than 68% of all equivalent readings from the past year. 

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