Earnings Preview: Sears Holdings Corp, Hewlett-Packard Company, and Salesforce.com, inc.

Analyzing pre-earnings option trends on Sears Holdings Corp (NASDAQ:SHLD), Hewlett-Packard Company (NYSE:HPQ), and

by Karee Venema

Published on Aug 19, 2015 at 11:23 AM

Retailers have been dominating the earnings confessional this week, with names such as Wal-Mart Stores, Inc. (NYSE:WMT) and Target Corporation (NYSE:TGT) making notable moves in the wake of their results. Looking ahead, fellow retailer Sears Holdings Corp (NASDAQ:SHLD) will step up to the plate tomorrow morning, while computer concern Hewlett-Packard Company (NYSE:HPQ) and cloud issue Salesforce.com, inc. (NYSE:CRM) will unveil their results tomorrow evening. Below, we'll take the pre-earnings temperature of SHLD, HPQ, and CRM.

  • Call buyers have been busy in SHLD's options pits in recent months, per the stock's 50-day International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) call/put volume ratio of 3.45 -- in the 98th annual percentile. (With 80% of the stock's float sold short, though, some of this activity could be of the protective kind.) Regardless, the options market is pricing in relatively low volatility expectations at the moment, despite the uncertainty surrounding tomorrow's scheduled event. SHLD's Schaeffer's Volatility Index (SVI) of 62% sits lower than 89% of all comparable readings taken in the past year. Historically speaking, the stock has averaged a single-session post-earnings swing of 5.3% over the past eight quarters -- less than the 7.2% the security's near-term at-the-money (ATM) straddle is forecasting for this time around. On the charts, Sears Holdings Corp has spent most of the past 52 weeks bouncing between $20 and $40, and was last seen lingering near the lower end of this range at $23.79.

  • It's been a rough year for HPQ, which has shed 30.6% to trade near $27.87. Today, in fact, the shares tumbled to a fresh annual low of $27.83 -- the second in as many days -- thanks to price-target cuts at Monness Crespi Hardt (to $40) and RBC (to $36). Against this backdrop, option traders have been growing increasingly bearish, and at the ISE, CBOE, and PHLX, HPQ's 10-day put/call volume ratio has jumped to 1.81 from 0.69 over the past two weeks. What's more, the current ratio ranks just 3 percentage points from a 52-week peak, meaning long puts have been initiated over calls at a near-annual-high clip. These speculators are willing to pay a pretty penny, too, considering the equity's 30-day ATM implied volatility (IV) hit a 52-week peak of 38% earlier. Meanwhile, over the past eight quarters, Hewlett-Packard Company has moved an average of 7.8% in the session subsequent to reporting. This time around, the security's near-term ATM straddle is forecasting a slimmer 6.2% move.

  • CRM's near-term ATM straddle is pricing in a 7.4% post-earnings swing for the stock -- roughly in line with the 7% single-session move it's averaged over the past eight quarters. Option traders, it seems, are rolling the dice on this post-earnings action to resolve to the downside, as indicated by CRM's 10-day ISE/CBOE/PHLX put/call volume ratio of 0.81 -- in the 80th percentile of its annual range. Volatility expectations are running high ahead of earnings, too. The security's 30-day ATM IV of 44.6% sits above 87% of all comparable readings taken in the past year. Technically speaking, Salesforce.com, inc. has been a standout. Year-to-date, the shares are up 22% at $72.26 -- and have more recently found a firm foothold atop their rising 120-day moving average.

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