Earnings Preview: Verizon Communications Inc., Chipotle Mexican Grill, Inc., and Yahoo! Inc.

Analyzing pre-earnings options trends on Verizon Communications Inc. (NYSE:VZ), Chipotle Mexican Grill, Inc. (NYSE:CMG), and Yahoo! Inc. (NASDAQ:YHOO)

by Karee Venema

Published on Jul 20, 2015 at 3:32 PM

It's a busy week on the earnings front, and tomorrow, Wall Street will get the latest results from telecommunications titan Verizon Communications Inc. (NYSE:VZ), burrito chain Chipotle Mexican Grill, Inc. (NYSE:CMG), and search engine specialist Yahoo! Inc. (NASDAQ:YHOO). Below, we'll take the pre-earnings temperature of VZ, CMG, and YHOO.

  • VZ will unveil its second-quarter results ahead of the open, and according to the stock's near-term at-the-money (ATM) straddle, the options market is expecting a 1.8% post-earnings move. This is slightly more than the 1.4% swing the security has averaged over the past eight quarters in the session subsequent to reporting. Option traders have been buying to open puts over calls at a rapid-fire rate in recent months, per the stock's 50-day International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) put/call volume ratio of 1.01 -- in the 99th percentile of its annual range. Meanwhile, VZ's short-term options are pricing in relatively tame volatility expectations, considering its 30-day ATM implied volatility (IV) of 12.7% rests lower than 76% of all similar readings taken in the past year. Technically speaking, Verizon Communications Inc. (NYSE:VZ) has spent the past couple of years bouncing between $46 and $52, and was last seen lingering near $47.88.

  • CMG will step up to the plate after tomorrow's close, and ahead of the second-quarter earnings release, the stock is up 2.6% at $678.92 -- and making a run for its year-to-date breakeven mark. The equity could be poised to see some volatility in the wake of earnings, considering it's averaged a single-session post-earnings move of 9.4% in the last eight quarters -- the most recent three of which were to the downside. This time around, the options market is forecasting a slimmer 8.3% swing, based on CMG's near-term ATM straddle. In Chipotle Mexican Grill, Inc.'s options pits, speculators have taken the glass-half-full approach of late. At the ISE, CBOE, and PHLX, the equity's 50-day call/put volume ratio of 0.97 rests in the 84th annual percentile. Those currently purchasing CMG's short-term options are paying up for elevated volatility expectations, based on the stock's 30-day ATM IV of 40%, which ranks 3 percentage points from a 52-week peak.

  • YHOO will also unveil its second-quarter results after the close, and the options market is projecting a 4.7% post-earnings move (based on the stock's near-term ATM straddle). This is roughly in line with the 5% move Yahoo! Inc. has averaged over the past eight quarters in the session after announcing. On the charts, the equity has struggled in 2015, down 21.5% at $39.62, and sentiment has been skewed toward the skeptical side. In fact, the stock's 10-day ISE/CBOE/PHLX put/call volume ratio of 0.54 rests in the 92nd percentile of its annual range, meaning puts have been bought to open over calls at a faster clip just 8% of the time within the past year. Currently, YHOO's short-term options are priced at a relative bargain, as evidenced by its Schaeffer's Volatility Index (SVI) of 13%, which ranks lower than 78% of all comparable readings taken in the last 12 months.

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