Earnings Preview: Verizon Communications Inc., Travelers Companies Inc, and Southwest Airlines Co

Verizon Communications Inc. (NYSE:VZ), Travelers Companies Inc (NYSE:TRV), and Southwest Airlines Co (NYSE:LUV) will report earnings tomorrow morning

Jan 20, 2016 at 1:57 PM
facebook twitter linkedin

Blue chips are dominating the earnings calendar this week, with Goldman Sachs Group Inc (NYSE:GS) and International Business Machines Corp. (NYSE:IBM) taking it on the chin today in the wake of their disappointing results. Looking ahead, fellow blue chips Verizon Communications Inc. (NYSE:VZ) and Travelers Companies Inc (NYSE:TRV) are on tap to report tomorrow morning, as is airline issue Southwest Airlines Co (NYSE:LUV). Below, we'll take the pre-earnings temperature of VZ, TRV, and LUV.

  • VZ is trading 1.6% lower at $44.16, amid stiff broad-market headwinds. Today's negative price action is just more of the same for a stock that's shed 4.5% year-to-date. Option traders, it appears, are bracing for more losses, and at the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), VZ's 10-day put/call volume ratio of 2.17 ranks in the 94th annual percentile. Simply stated, puts have been bought to open over calls at a near-annual-high clip.

    Historically speaking, Verizon Communications Inc. has averaged a single-session post-earnings move of 1.2% over the past eight quarters -- five of which have been to the downside. This time around, the equity's weekly 1/22 at-the-money (ATM) straddle is pricing in a bigger 2.6% post-earnings swing.

  • Option traders are much more optimistic about TRV's post-earnings trajectory, per the stock's 10-day ISE/CBOE/PHLX call/put volume ratio of 3.06 -- in the 91st percentile of its annual range. Those purchasing near-term options are willing to pay a pretty penny, considering the equity's 30-day ATM implied volatility of 26.7% rests higher than 99% of all similar readings taken in the last year.

    Over the past eight quarters, Travelers Companies Inc has averaged a 2.3% swing in the session subsequent to reporting -- much less than the 6.9% the equity's near-term ATM straddle is pricing in for this report -- and has enjoyed a positive earnings reaction five times. In the lead up to the results, shares of Travelers Companies Inc are down 2.4% at $103.23, extending their year-to-date decline to 8.5%.

  • Similar to several of its sector peers, LUV is down 1.7% at $38.94. Since topping out at a record high of $51.34 on Dec. 7, the shares have surrendered over 24% -- and are in danger of closing south of their 80-week moving average for the first time since July. Against this backdrop -- and unlike the brokerage bunch -- speculative players have been lining up on the bearish side of the aisle, as evidenced by Southwest Airlines Co's 50-day ISE/CBOE/PHLX put/call volume ratio of 0.97, in the 100th percentile of its annual range. The stock has made some notable post-earnings moves over the past eight quarters -- including an 8.4% pop one year ago -- averaging a 3.4% swing. Based on LUV's weekly 1/22 ATM straddle, meanwhile, the options market is expecting a bigger move of 5.3% by week's end.



If you are not making money with options, you aren’t buying options like this…

There is no options strategy that more perfectly approaches trading the fastest moving and most volatile stocks available in the marketplace than this one. In fact, there is no strategy that better utilizes put options for optimal returns and a real trading edge over other traders in the exact same market. New options traders fail out at an incredible rate without proper trade research, execution timing, and option picking. Capitalize on Schaeffer’s 100+ years of options trading excellence with the most coveted product launch in company history. Don't waste another second... join us right now before the next round of trades are released!

Schaeffer's Investment Research Master Portfolio Trial


Special Offers from Schaeffer's Trading Partners