Earnings Preview: Ambarella Inc, Broadcom Ltd, and Smith & Wesson Holding Corp

Ambarella Inc (AMBA), Broadcom Ltd (AVGO), and Smith & Wesson Holding Corp (SWHC) will report earnings tonight

by Alex Eppstein

Published on Mar 3, 2016 at 12:29 PM

Several stocks are making big moves today on quarterly earnings. The same could be true of semiconductor stocks Ambarella Inc (NASDAQ:AMBA) and Broadcom Ltd (NASDAQ:AVGO), as well as gun maker Smith & Wesson Holding Corp (NASDAQ:SWHC), which report earnings after tonight's close. Let's take a pre-earnings look at AMBA, AVGO, and SWHC. 

  • AMBA is up 2.6% at $46.44, but a bigger move could be in store tomorrow following tonight's earnings report. Specifically, the options market is pricing in a 13.2% one-day post-event swing. Historically, however, the stock has averaged a much more modest 4.3% move in the immediate aftermath of its past eight quarterly reports. If short sellers have their druthers, Ambarella Inc will continue its long-term funk, as the shares are down 64.3% from last July's record high at $129.19. A mind-bending 38.8% of the stock's float is sold short, which would take nearly nine sessions to buy back, at average daily volumes. Some of these shorts may have hedged their bets with protective calls. According to data at the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), 2.45 AMBA calls have been bought to open for each put during the past two weeks.

  • Short-term option traders have been relatively put-skewed on AVGO heading into earnings. Specifically, the stock's Schaeffer's put/call open interest ratio (SOIR) of 0.79 outranks more than four-fifths of comparable readings from the previous 12 months. Meanwhile, premiums on near-term Broadcom Ltd options have grown relatively pricey, based on its Schaeffer's Volatility Index (SVI) of 56% -- which ranks in the 71st annual percentile. In other words, from a historical perspective, it may be a better time to sell short-term AVGO options than buy them. On the charts, AVGO is down 1% at $135.55, but earlier hit its highest perch since early January at $138.85.

  • SWHC has been climbing higher for some time, gaining 75.4% year-over-year at $25.15. However, traders at the ISE, CBOE, and PHLX have been placing downside bets at a faster-than-usual clip in recent weeks. Specifically, the stock's 10-day put/call volume ratio of 0.44 sits in the 73rd annual percentile -- though shareholders could also be purchasing puts as protection. This hedging strategy may be smart, given Smith & Wesson Holding Corp's historical post-earnings volatility. On average, the shares have moved 8.2% in the session following the company's last eight quarterly reports.
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