Earnings Preview: Shake Shack, Kohl's, and Applied Materials

Analyzing recent option activity ahead of earnings from Shake Shack Inc (NYSE:SHAK), Kohl's Corporation (NYSE:KSS), and Applied Materials, Inc. (NASDAQ:AMAT)

by Griffin Kruse

Published on May 13, 2015 at 3:06 PM
Updated on Jun 24, 2020 at 12:04 PM

Among the stocks gearing up to report earnings are restaurant chain Shake Shack Inc (NYSE:SHAK), retailer Kohl's Corporation (NYSE:KSS), and semiconductor concern Applied Materials, Inc. (NASDAQ:AMAT). Below, we'll take the pre-earnings temperature of SHAK, KSS, and AMAT. 

  • While SHAK is up over 40% since going public in late January, the shares have pulled back 16.4% from their May 6 all-time high of $79.50, last seen at $66.50. Meanwhile, short sellers have taken a shine to Shake Shack Inc, as short interest surged by roughly 19% over the last two reporting periods. It now comprises 40.1% of SHAK's available float, which would take over three sessions to cover, at average trading volumes. The brokerage bunch has been skeptical of the equity as well, as all six analysts covering the equity rate it a "hold." On the earnings front, SHAK -- which reports after the close today -- gained 1.9% in the session immediately following its only trip to the earnings confessional in March. 
  • KSS has been a technical juggernaut, with the shares up 21.5% year-to-date to hover around $74.16. After notching an all-time high of $79.60 on April 6, KSS pulled back to -- and bounced from -- support in the $71-$72 neighborhood, now home to the equity's ascending 80-week trendline. Call buying in the options pits has hit fever pitch ahead of tomorrow morning's trip to the earnings limelight, with traders hoping for a better reaction than sector peer Macy's, Inc. (NYSE:M). Drilling down, Kohl's Corporation's 50-day International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) call/put volume ratio of 1.88 is the highest comparable reading from the last year. Elsewhere, KSS has moved an average of 2.8% in the session immediately following its last four earnings reports, and the options market is pricing in a post-earnings move of 5.2% this go-around, per KSS' short-term at-the-money (ATM) straddle. Near-term options players have been paying relatively fair prices for their positions on KSS, as the stock's Schaeffer's Volatility Index (SVI) of 28% stands in the 44th annual percentile. 
  • On the other hand, AMAT has been trending lower, with the shares down 20.1% year-to-date to linger near $19.91. What's more, most of this deficit is due to the firm's merger with Tokyo Electron getting called off by the Department of Justice, which sent AMAT to six-month lows. Not surprisingly, options traders have been more put-skewed than usual, as Applied Materials, Inc.'s 10-day ISE/CBOE/PHLX put/call volume ratio of 0.34 ranks in the 78th percentile of its annual range. On the earnings front, AMAT has moved an average of 4% in the session immediately after its last four earnings releases, with only one of those sessions resulting in a loss. Accordingly, the options market is pricing in a move of 4% after AMAT releases its earnings tomorrow night, per the stock's near-term ATM straddle. Short-term options are available for historically deflated prices, as AMAT's SVI of 30% is higher than just 23% of all equivalent readings from the past 12 months. 

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