Earnings Preview: Silver Wheaton Corp. and Royal Gold, Inc

Will precious metal stocks Silver Wheaton Corp. (USA) (NYSE:SLW) and Royal Gold, Inc (USA) (NASDAQ:RGLD) keep running higher after earnings?

by Alex Eppstein

Published on Aug 10, 2016 at 12:25 PM
Updated on Jun 24, 2020 at 10:16 AM

Precious metal stocks have been among the top performers over the past year, as gold and silver prices have risen sharply. Two such stocks that will soon be in the spotlight are Silver Wheaton Corp. (USA) (NYSE:SLW) and Royal Gold, Inc (USA) (NASDAQ:RGLD), with the former reporting earnings tonight and the latter telling all tomorrow morning. Ahead of these events, let's take a closer look at how options traders have been positioning themselves.

A sharp move is expected out of SLW in the session following earnings, with the options market pricing in a 6.4% one-day swing in either direction -- more than doubling the stock's typical move of 2.9% over the past eight quarters. While the shares have been strong in 2016 -- fresh off a three-year high of $30.85, and last seen up 2.6% at $30.53 -- they haven't fared particularly well post-earnings. In fact, following SLW's last three quarterly reports, the stock has stumbled in the subsequent session.

However, it looks like options traders are hoping for the best. During the last two weeks at the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), speculators have bought to open nearly five Silver Wheaton Corp. calls for every put. The resultant call/put volume ratio of 4.87 ranks near the top quartile of its annual range.

Meanwhile, RGLD options players are bracing for the worst ahead of earnings, as its 10-day ISE/CBOE/PHLX put/call volume ratio stands at a top-heavy 2.41 -- an annual bearish high. Of course, given that the stock has once again started off August with a bang, and at $86.38 has soared 137% year-to-date, it's likely some of these put buyers are shareholders seeking a downside hedge.

Historically speaking, Royal Gold, Inc has fared well post-earnings, advancing 3.4% in the session after its late-April report, and tacking on a gaudy 12.8% following its early February release. However, going back to last November's trip to the confessional, the stock suffered a brutal 14.3% single-session beat-down.

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