Earnings Preview: Johnson & Johnson, Intel Corporation, and JPMorgan Chase & Co.

Analyzing recent option activity ahead of earnings on Johnson & Johnson (NYSE:JNJ), Intel Corporation (NASDAQ:INTC), and JPMorgan Chase & Co. (NYSE:JPM)

Oct 12, 2015 at 12:13 PM
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Alcoa Inc (NYSE:AA) kicked off third-quarter earnings season in lackluster fashion. However, there are plenty more reports set to pour in, including those from blue chips Johnson & Johnson (NYSE:JNJ), Intel Corporation (NASDAQ:INTC), and JPMorgan Chase & Co. (NYSE:JPM). Below, we'll take the pre-earnings temperature on JNJ, INTC, and JPM.

  • Drugmakers are in the spotlight today, following a number of fundamental developments -- as well as a round of price-target cuts from Jefferies. For JNJ, this resulted in a downwardly revised price target to $87 -- territory last visited by the stock as it was tumbling toward a two-year low of $81.79 on Aug. 24. More recently, JNJ was seen lingering near $96.02 -- down 8.2% on the year.

    In the options pits, optimism has been growing in the weeks leading up to tomorrow morning's report. At the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), the equity's 10-day call/put volume ratio has jumped to 1.43 from 0.38 over the past two weeks -- and is currently ranked in the 65th annual percentile. Simply stated, calls have been bought to open over puts at a faster-than-usual clip. Looking back over the past eight quarters, meanwhile, Johnson & Johnson has averaged a single-session post-earnings move of 1.3% -- slightly less than the 1.9% swing the equity's near-term at-the-money (ATM) straddle is pricing in for this time around. Should this action resolve to the downside, a capitulation among option bulls could translate into headwinds.

  • INTC will tell all in the earnings confessional tomorrow evening, and ahead of the event, the stock is down 0.1% at $32.12. Longer term, INTC has rallied 29.2% since hitting an annual low of $24.87 in late August, and as such, the security's 14-day Relative Strength Index (RSI) closed Friday at 70 -- in overbought territory. In other words, a near-term pullback may have been in the cards.

    Nevertheless, option traders have been taking a glass-half-empty approach ahead of earnings. At the ISE, CBOE, and PHLX, Intel Corporation's 10-day put/call volume ratio of 1.52 rests higher than 83% of all similar readings taken in the past year. Meanwhile, pre-earnings volatility expectations are high, per the security's 30-day ATM implied volatility of 28.6% -- in the 77th annual percentile. Specifically, based on INTC's near-term ATM straddle, the market is expecting a 4.5% swing -- more than the 2.8% single-session post-earnings move INTC has averaged over the last eight quarters.

  • In its previous eight trips into the earnings limelight, JPM has averaged a single-session post-earning move of 1.7% -- below the 2.7% swing the stock's near-term ATM straddle is projecting for this time around. Similar to the Financial Select Sector SPDR ETF (XLF), pre-earnings speculation has been cautious toward JPM. In fact, the stock's 50-day ISE/CBOE/PHLX put/call volume ratio of 0.79 rests above 63% of comparable readings taken in the past year.

    On the charts, JPM has moving steadily lower since topping out at a record high of $70.61 on July 23, down 12.7%. Today, the stock is off 0.5% at $61.61, and struggling to find a foothold atop its 320-day moving average. This trendline has served as both support and resistance for JPMorgan Chase & Co. since late August.

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