Earnings Preview: Home Depot Inc, Wal-Mart Stores, Inc., and Canadian Solar Inc.

Analyzing pre-earnings option trends on Home Depot Inc (NYSE:HD), Wal-Mart Stores, Inc. (NYSE:WMT), and Canadian Solar Inc. (NASDAQ:CSIQ)

by Karee Venema

Published on Aug 17, 2015 at 11:24 AM
Updated on Jun 24, 2020 at 10:16 AM

Second-quarter earnings season is quickly drawing to a close; however, there's still plenty of action on this week's calendar to hold Wall Street's attention. Specifically, blue chips Home Depot Inc (NYSE:HD) and Wal-Mart Stores, Inc. (NYSE:WMT), as well as alternative energy issue Canadian Solar Inc. (NASDAQ:CSIQ), are slated to step up to the plate bright and early tomorrow morning. Below, we'll take the pre-earnings temperature of HD, WMT, and CSIQ.

  • HD is up 0.5% at $120.34 -- and fresh off a record peak of $120.47 -- on word that George Soros upped his stake in the company by 17.2% in the second quarter. Longer term, the shares have tacked on 14.6% year-to-date. Option traders have been upping the bullish ante ahead of earnings, per HD's 50-day International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) call/put volume ratio of 1.27, which ranks in the 84th annual percentile. Those purchasing the stock's short-term options are contending with elevated volatility expectations at the moment, considering HD's 30-day at-the-money (ATM) implied volatility (IV) of 21.3% sits higher than 87% of all comparable readings taken in the past year. Meanwhile, looking back over the past eight quarters, Home Depot Inc has averaged a single-session post-earnings move of 2.7% -- slightly less than the 3.3% the security's near-term ATM straddle is pricing in this time around.

  • Call buyers have also been busy in the lead-up to WMT's big event. In fact, at the ISE, CBOE, and PHLX, the equity's 50-day call/put volume ratio of 3.43 ranks just 5 percentage points from a 52-week peak. Short-term traders are willing to pay a pretty penny for their bullish bets, as well, with the equity's 30-day ATM IV topping out at an annual high of 22.1% earlier. Historically speaking, WMT has averaged a 2.5% single-session post-earnings swing over the past eight quarters. This time, the stock's near-term ATM straddle is forecasting a bigger move of 3.8%. Technically speaking, Wal-Mart Stores, Inc. has been in a steady downtrend since topping out at a record high of $90.97 in mid-January, off 21%. More recently, the shares have encountered an overhead ceiling in the form of their 60-day moving average, and were last seen lingering near $72.16.

  • Over the last eight quarters, CSIQ has averaged an 11.9% swing in the session subsequent to reporting. Based on the equity's near-term ATM straddle, the options market is pricing in a slightly smaller 11.1% move for this quarter. It appears option traders are expecting this move to resolve to the downside, considering CSIQ's 50-day ISE/CBOE/PHLX put/call volume ratio of 1.41 rests in the 90th percentile of its annual range. Simply stated, puts have been bought to open over calls at a near-annual-high clip during the past 10 weeks. From a volatility perspective, those currently purchasing pre-earnings bets are willing to pay up. The equity's 30-day ATM IV of 75.6% sits higher than 88% of all comparable readings taken in the past year. On the charts, Canadian Solar Inc. has been losing ground since peaking above the round-number $40 mark in mid-May, down 40%. The equity is continuing this negative price action today -- off 2.1% at $24.23, and testing a foothold atop its year-to-date breakeven mark.

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