Earnings Preview: Alibaba Group Holding Ltd, 3D Systems Corporation, and Herbalife Ltd.

Alibaba Group Holding Ltd (NYSE:BABA), 3D Systems Corporation (NYSE:DDD), and Herbalife Ltd. (NYSE:HLF) are slated to report earnings tomorrow

May 4, 2016 at 2:12 PM
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Stocks have been making big post-earnings moves this week, as evidenced by the action seen in shares of Priceline Group Inc (NASDAQ:PCLN), Etsy Inc (NASDAQ:ETSY), and Glu Mobile Inc. (NASDAQ:GLUU). There's still plenty more action on this week's earnings calendar, though, with Chinese e-commerce concern Alibaba Group Holding Ltd (NYSE:BABA), 3-D printing specialist 3D Systems Corporation (NYSE:DDD), and nutritional supplements maker Herbalife Ltd. (NYSE:HLF) all slated to report quarterly earnings tomorrow. Here's a quick look at the pre-earnings options activity on BABA, DDD, and HLF.

Short-term options traders have rarely been as put-heavy toward BABA as they are now, per the stock's Schaeffer's put/call open interest ratio (SOIR) of 0.86 -- in the 93rd annual percentile. Today, in fact, BABA puts are running at four times the average intraday pace, and it looks like a bulk of the action is a result of one speculator rolling her bearish May 85 put out and down to the June 80 strike. Now appears to be the time for near-term options buyers to strike, too. BABA's Schaeffer's Volatility Scorecard (SVS) rests at 92, meaning the options market has historically underpriced the stock's ability to make big moves over the past year.

Looking back over the past six quarters, BABA has averaged a single-session post-earnings move of 5.6%. This time around, the options market is expecting a bigger swing of 8.3%. On the charts, BABA rallied hard after hitting a 2016 low of $59.25 in early February, rising all the way up to a five-month high of $85.89 on April 22. More recently, though, Alibaba Group Holding Ltd was seen hovering lower near $75.45 -- back in the red on a year-to-date basis. Today's 0.6% loss may have something to do with James Chanos of Kynikos Associates reiterating his short position on the e-tail stock.

Put buyers have been piling onto DDD at a rapid-fire rate in recent weeks. At the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), for instance, the equity's 10-day put/call volume ratio of 2.01 sits just 4 percentage points from a 52-week peak. Similar to BABA, DDD's SVS is docked at a lofty 88, indicating short-term options are relatively inexpensive at the moment -- from a volatility perspective.

Historically, DDD has seen some big single-session post-earnings moves, including a 25% pop in mid-March. Over the past eight quarters, the shares have moved an average of 9.4% in the session subsequent to reporting -- versus the 15.3% swing the options market is expecting in tomorrow's trading. Technically, 3D Systems Corporation has shed roughly 26% since hitting an analyst-induced year-to-date high of $19.76 in mid-April, last seen down 4.5% at $14.66.

Long puts have also been popular in HLF's options pits in the lead-up to tomorrow's earnings report. At the ISE, CBOE, and PHLX, the security's 10-day put/call volume ratio of 3.58 ranks higher than 95% of all comparable readings taken in the past year. Meanwhile, it's getting a little pricey to purchase HLF's near-term options, per its Schaeffer's Volatility Index (SVI) of 85% -- in the 70th percentile of its annual range. In other words, premium on the stock's short-term options is pricing in elevated volatility expectations at the moment.

Over the past eight quarters, in fact, the stock has swung an average of 13.1% in the session after reporting -- with the options market pricing in a single-session post-earnings swing of 18.3% this time. Longer term -- and to the dismay of Bill Ackman -- Herbalife Ltd. has jumped 37% since hitting a year-to-date low of $42.26 in mid-February to trade at $58.00, and hit an annual high of $63.59 as recently as March 21.

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