Earnings Preview: Qualcomm, Freeport-McMoRan Inc, and McDonald's Corporation

Analyzing pre-earnings option trends on QUALCOMM, Inc. (NASDAQ:QCOM), Freeport-McMoRan Inc (NYSE:FCX), and McDonald's Corporation (NYSE:MCD)

by Karee Venema

Published on Jul 22, 2015 at 2:50 PM
Updated on Jul 22, 2015 at 2:56 PM

U.S. markets are getting pummeled today, thanks to the latest round of corporate earnings. However, there are still plenty of reports left on the week's docket, including those from chipmaker QUALCOMM, Inc. (NASDAQ:QCOM), mining name Freeport-McMoRan Inc (NYSE:FCX), and fast food giant McDonald's Corporation (NYSE:MCD). Below, we'll take the pre-earnings temperature of QCOM, FCX, and MCD.

  • After making a big announcement yesterday, QCOM is slated to unveil its fiscal third-quarter results after tonight's close. Ahead of the event, the shares are off 1.3% at $64.33 -- extending their year-to-date decline to 13.5%. Historically, the stock has averaged a single-session post-earnings move of 5% during the past eight quarters -- six of which have been to the downside -- and per QCOM's near-term at-the-money (ATM) straddle, the options market is expecting a slimmer move of 4.6% this time around. Option traders have taken the bearish route in the weeks leading up to tonight's report. The stock's 10-day International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) put/call volume ratio of 0.61 ranks in the 67th annual percentile. Currently, the stock's short-term options are relatively pricey, considering QUALCOMM, Inc.'s 30-day ATM implied volatility (IV) of 26% sits higher than 74% of all comparable readings taken in the past year.

  • FCX will release its second-quarter report ahead of tomorrow's open, and over the last eight quarters, the equity -- on average -- has moved 2.6% in the following session. This time, the options market is expecting a bigger move of 6.7%, as suggested by the security's near-term ATM straddle. On the charts, FCX has had a terrible time in 2015 -- down 35.7% at $15.02. In fact, the shares are tumbling in step with gold today, and hit a six-year low of $14.86 earlier. Speculators in the equity's options arena are calling for even more downside, based on FCX's 10-day ISE/CBOE/PHLX put/call volume ratio of 0.85 -- which sits higher than 71% of all similar readings taken in the past year. Meanwhile, Freeport-McMoRan Inc's short-term options are presently pricing in relatively lofty volatility expectations. Specifically, the security's Schaeffer's Volatility Index (SVI) of 48% rests in the 70th percentile of its annual range.

  • MCD will also report earnings bright and early tomorrow. Since late February, the security has been bouncing between $94 and $101, and was most recently seen near the middle of this range, at $97.71. Option players, meanwhile, have been initiating long puts over calls at an accelerated clip in recent months. At the ISE, CBOE, and PHLX, MCD's 50-day put/call volume ratio of 0.66 arrives higher than 76% of all other comparable readings taken in the past year. Volatility levels are currently inflated on MCD, per the equity's 30-day ATM IV of 19.7% -- in the 77th annual percentile. Looking back over the previous eight quarters, McDonald's Corporation has moved an average of 1.3% in the session subsequent to reporting. The options market is projecting a larger swing of 2.9%, based on MCD's near-term ATM straddle.

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