Earnings Preview: Whole Foods Market, Inc., SolarCity Corp, and LinkedIn Corp

Analyzing pre-earnings options trends on Whole Foods Market, Inc. (NASDAQ:WFM), SolarCity Corp (NASDAQ:SCTY), and LinkedIn Corp (NYSE:LNKD)

Jul 29, 2015 at 11:36 AM
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Earnings season is in full swing, with today's traders digesting the latest results from Twitter Inc (NYSE:TWTR), Yelp Inc (NYSE:YELP), and Gilead Sciences, Inc. (NASDAQ:GILD) -- among many others. Looking ahead, the week's action is far from over, with quarterly reports from organic grocer Whole Foods Market, Inc. (NASDAQ:WFM), alternative energy issue SolarCity Corp (NASDAQ:SCTY), and professional networking site LinkedIn Corp (NYSE:LNKD). Below, we'll take the pre-earnings temperature of WFM, SCTY, and LNKD.

  • WFM has historically made some big post-earnings moves, averaging an 8.4% swing over the past eight quarters. This time, the options market is pricing in a 7.7% move, based on the equity's near-term at-the-money (ATM) straddle. It seems speculators are betting on the action to resolve itself to the downside. At the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), WFM's 10-day put/call volume ratio of 0.82 ranks in the 74th annual percentile. In other words, puts have been bought to open over calls at a faster-than-usual clip. Despite the uncertainty surrounding tonight's scheduled event, the equity's short-term options are pricing in relatively middling volatility expectations. Specifically, Whole Foods Market, Inc.'s Schaeffer's Volatility Index (SVI) of 38% sits in the 51st percentile of its 12-month range. Technically speaking, WFM is off 28% from its Feb. 19 annual high of $57.57 to trade at $41.42.

  • SCTY is also preparing to tell all in the earnings confessional after tonight's close, and ahead of the event, the equity is up 2.3% at $57.33 -- and on track to close north of its 50-day moving average for the first time since June 4. According to the security's near-term ATM straddle, the options market is forecasting a post-earnings swing of 6.5% in tomorrow's trading, slightly less than the 7.2% SCTY has averaged over the past eight quarters. Short-term traders are more put-skewed than usual toward the equity, as evidenced by the stock's Schaeffer's put/call open interest ratio (SOIR) of 0.94, which ranks in the 80th annual percentile. Regardless of which direction SCTY heads in the wake of earnings, those purchasing the stock's options can rest easy knowing the most they have on the line is the initial premium paid. What's more, SolarCity Corp's SVI of 52% arrives lower than 70% of all comparable readings taken in the past year, meaning short-term options are currently priced at attractive levels, from a volatility perspective.

  • LNKD is feeling the heat from post-earnings reactions to TWTR and YELP, last seen down 0.8% at $226.60. Longer term, the shares have been attempting to fill a late-April earnings-related bear gap, but have recently encountered resistance at their 200-day moving average -- a trendline that roughly coincides with the stock's year-to-date breakeven level. Similar to Facebook Inc (NASDAQ:FB) traders, LinkedIn Corp speculators have been lining up on the bullish side of the fence ahead of tomorrow night's quarterly report. In fact, the equity's 50-day ISE/CBOE/PHLX call/put volume ratio of 1.55 sits just 8 percentage points from a 52-week peak. Those currently purchasing the stock's near-term options are willing to pay pretty penny, considering its SVI of 60% rests higher than 93% of all similar readings taken in the past year. Historically speaking, LNKD has averaged a single-session post-earnings move of 11% over the past eight quarters -- in line with what the stock's near-term ATM straddle is pricing in for this time around.

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