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Earnings Preview: Home Depot, Walmart, Take-Two Interactive

Analyzing recent option activity ahead of earnings from Home Depot Inc (NYSE:HD), Wal-Mart Stores, Inc. (NYSE:WMT), and Take-Two Interactive Software, Inc. (NASDAQ:TTWO)

May 18, 2015 at 11:46 AM
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Among the stock preparing to tell all in the earnings confessional are blue chips Home Depot Inc (NYSE:HD) and Wal-Mart Stores, Inc. (NYSE:WMT), as well as gaming guru Take-Two Interactive Software, Inc. (NASDAQ:TTWO). Below, we'll take the pre-earnings temperature of HD, WMT, and TTWO.

  • HD is slated to take its turn in the earnings confessional bright and early tomorrow morning, and ahead of the event, the stock is off 0.1% at $113.25. Longer term, the shares are up 48% over the past 52 weeks, and more recently, found a foothold atop their 120-day moving average during an early May pullback. Option traders in recent weeks have been quick to bet on more upside. At the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), HD's 10-day call/put volume ratio of 2.55 rests just 5 percentage points from a 52-week peak. These bulls are paying relatively fair prices for their pre-earnings bets, per HD's Schaeffer's Volatility Index (SVI) of 19%, which ranks in the 47th percentile of its annual range. Looking back over the past eight quarters, Home Depot Inc has averaged a single-session post-earnings swing of 2.8%. This time around, the options market is pricing in a 3% move, based on the equity's near-term at-the-money (ATM) straddle.
  • WMT will also unveil its first-quarter results ahead of tomorrow's open, and based on the stock's short-term ATM straddle, the expectation is for the equity to move 2.6% post-earnings. This is slightly more than the 2.1% post-earnings shift the security has averaged over the last eight quarters. On the charts, WMT has been losing ground since hitting a record high of $90.97 in mid-January, off 12.4% at $79.65. Option traders have kept the faith, though, and at the ISE, CBOE, and PHLX, WMT's 50-day call/put volume ratio of 3.18 sits higher than 85% of all comparable readings taken over the past 12 months. Despite the anticipation surrounding tomorrow's scheduled event, Wal-Mart Stores, Inc.'s short-term options are pricing in relatively low volatility expectations. Specifically, the equity's SVI of 16% ranks in the 34th annual percentile.
  • TTWO will release its fiscal fourth-quarter results after today's close, and in the lead-up to the big event, the stock is down 0.8% at $24.50, thanks to a price-target cut to $31.29 from $34.99 at Benchmark. This lackluster price action just echoes TTWO's recent technical showing, with the stock bouncing between $23.50 and $25.50 since late March. In the options pits, short-term speculators are more put-skewed than usual -- TTWO's Schaeffer's put/call open interest ratio (SOIR) of 0.88 ranks in the 81st percentile of its annual range. Meanwhile, based on the equity's SVI of 44%, which rests higher than 53% of all similar readings taken over the previous 52 weeks, TTWO's short-term options are currently priced at relatively fair prices. From a historical perspective, Take-Two Interactive Software, Inc. has averaged a single-session post-earnings move of 5.8% over the past eight quarters. This time, however, the options market is expecting a bigger 10.3% swing, per TTWO's near-term ATM straddle.

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