Earnings Preview: Advanced Micro Devices, Inc. and General Electric Company

Advanced Micro Devices, Inc. (NASDAQ:AMD) and General Electric Company (NYSE:GE) are preparing to report first-quarter earnings

Apr 21, 2016 at 12:55 PM
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With blue-chip earnings still in focus, industrial giant General Electric Company (NYSE:GE) is set to enter the earnings confessional tomorrow morning. But first, semiconductor maker Advanced Micro Devices, Inc. (NASDAQ:AMD) will step up to the plate, reporting its first-quarter results after the close tonight. Below, we'll examine expectations for AMD and GE as they gear up for earnings.

AMD enjoyed a huge rally from February through March, adding 60% in just over a month to hit a 2016 high of $2.93 on March 30. However, the shares have been trending lower since, backing down from their 30-month moving average -- which has been capping rally attempts since mid-2014. Still, AMD could find an ally in its 40-day moving average earlier this week -- a level that supported AMD through much of late 2015. 

Analysts are far from optimistic, with 14 out of 18 rating AMD a "hold" or worse. And though short interest fell nearly 19% during the most recent two-week reporting period, these bearish bets still account for 17% of the equity's total float. At AMD's average daily volume, it would take about eight sessions for short sellers to cover their remaining positions.

Looking back, the stock has posted a negative one-day post-earnings return for the past four quarters in a row, with an average single-session move of 8% over the last eight quarters. Today, the options market is pricing in a much larger post-earnings swing of 16%, per Trade-Alert at-the-money straddle data.

Near-term traders have been unusually call-heavy lately, with AMD's Schaeffer's put/call open interest ratio (SOIR) of 0.33 ranking lower than 89% of the past year's readings. But puts are easily outpacing calls so far this morning, with one trader seemingly buying a block of 20,000 May 2.50 puts for $0.14 apiece, or $280,000 (ask price x 100 shares per contract x 20,000 contracts). The buyer will make money if AMD breaches $2.36 (strike minus premium paid) by the close on Friday, May 20, when the options expire. Advanced Micro Devices, Inc. (NASDAQ:AMD) was last seen trading down 2.2% at $2.64.

GE notched a seven-year high of $32.05 in late March, but has since pulled back to support at its 30-day moving average and year-to-date breakeven level. The stock was last seen down 0.2% at $31.08. 

Brokerage firms are split in their opinions, with half calling the stock a "hold" while the other half offer "buy" or better ratings. Short interest on GE has been climbing -- up 36.7% in the most recent reporting period alone -- but still accounts for less than 2% of the equity's available float.

Overall, option traders have been moderately bearish in recent weeks. GE's 10-day put/call volume ratio of 0.86 on the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) sits above two-thirds of all comparable readings in the last 12 months. And the security's post-earnings moves have historically been modest -- averaging a one-day swing of just 1.4% over the past eight quarters. According to near-term at-the-money straddle data, options are currently pricing in a slightly bigger post-earnings change of 2.5%.

Today, puts are more than tripling calls in GE's options pits. And near-term option buyers are likely getting a good deal ahead of earnings. General Electric Company's (NYSE:GE) Schaeffer's Volatility Index (SVI) of 15% rests in 8th percentile of its annual range, meaning the stock's short-term options should be attractively priced, from a volatility perspective.


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