Earnings Preview: Sohu.com Inc and Baidu Inc

Analyzing pre-earnings options trends on Sohu.com Inc (NASDAQ:SOHU) and Baidu Inc (ADR) (NASDAQ:BIDU)

Jul 24, 2015 at 2:39 PM
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Second-quarter earnings season kicked into high gear this week with a number of notable blue chips and tech titans releasing their reports. While a handful of big-time social media names will steal the spotlight next week, Beijing-based Internet issues Sohu.com Inc (NASDAQ:SOHU) and Baidu Inc (ADR) (NASDAQ:BIDU) will step up to the earnings plate on Monday.

  • SOHU will take its place in the limelight bright and early Monday morning, and option traders have been loading up on long puts in recent months. At the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), the equity's 50-day put/call volume ratio of 0.35 rests higher than 81% of all similar readings taken in the past year. In spite of the uncertainty surrounding the scheduled event, premium on SOHU's short-term options is relatively tame at the moment. Specifically, the stock's Schaeffer's Volatility Index (SVI) of 55% sits in the 36th percentile of its annual range. Looking back over the past eight quarters, Sohu.com Inc has averaged a single-session post-earnings swing of 5.6%, but this time around, the equity's near-term at-the-money (ATM) straddle is projecting a loftier 12.5% move. Technically speaking, the stock has shed 16.1% year-to-date to linger near $44.60 -- and has spent most of July moving in step with broader Chinese benchmarks. Today, in fact, SOHU is off 3.5%, after China's Shanghai Composite snapped its recent winning streak.
  • BIDU will unveil its results after Monday's close, and based on the equity's near-term ATM straddle, the options market is expecting an 8% post-earnings move. This is slightly more than the 6.2% swing the security has averaged over the past eight quarters. Speculators have been rolling the dice on a move to the upside -- BIDU's 10-day ISE/CBOE/PHLX call/put volume ratio of 1.91 ranks in the 82nd annual percentile. Simply stated, calls have been bought to open over puts at a faster-than-usual clip. Meanwhile, Baidu Inc's short-term options are pricing in elevated volatility expectations, considering its 30-day ATM implied volatility (IV) of 42.1% sits just 5 percentage points from a 52-week peak. On the charts, the stock has been feeling the heat from its 140-day moving average since February, down over 5%. More recently, the shares have been tracking the moves of mainland markets -- and were last seen down 0.7% at $206.21.

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