Earnings Preview: NQ Mobile Inc and Best Buy Co Inc

The options market is pricing in huge swings after earnings for both NQ Mobile Inc (ADR) (NYSE:NQ) and Best Buy Co Inc (NYSE:BBY)

by Alex Eppstein

Published on Aug 22, 2016 at 2:53 PM

The sun is beginning to set on earnings season, but a few notable companies are still due to report. For instance, telecom stock NQ Mobile Inc (ADR) (NYSE:NQ) will hit the confessional tonight, while electronics retailer Best Buy Co Inc (NYSE:BBY) will tell all tomorrow morning. Below, we'll take a closer look at pre-earnings options expectations for both NQ and BBY.

NQ is up 0.4% at $4.50, with just a few hours to go before the company reports earnings. Call buyers have been extremely active ahead of the event, according to data at the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX). Specifically, during the past two weeks, traders have bought to open more than 7,100 NQ calls and fewer than 400 puts.

On the charts, the stock has been charging higher since approaching 10-month lows around the $3 level in late July and early August, soaring nearly 50%. If past is prologue, another sharp move could be in store. Right now, the options market is pricing in a 21.1% post-earnings move for tomorrow's session. Historically speaking, NQ Mobile Inc shares have averaged a 14.5% one-day swing in the immediate aftermath of the company's last eight reports.

Turning to BBY, options buyers are in a frenzy, with contracts trading at seven times the usual intraday clip. More specifically, speculators are buying to open the weekly 8/26 33-strike call and 30-strike put, among several other options. In the past four weeks, call buyers have been in the driver's seat, based on the stock's 20-day ISE/CBOE/PHLX call/put volume ratio of 1.79. Of course, some of these seemingly bullish bettors could actually be short sellers seeking an upside hedge, with 11.5% of BBY's float dedicated to short interest.

That's not to say BBY hasn't warranted optimism. In fact, the shares have outperformed considerably since their most recent test of the $29 region in mid-June, but have struggled to take out resistance in the $34-$35 area. At last check, the stock was up 0.1% at $32.64.

With respect to earnings reactions, Best Buy Co Inc could go either way. In the session following the company's past eight reports, the stock has resolved higher half the time, and lower the other half. In any case, the options market is pricing in a bold 10.6% post-earnings swing this time around -- or double its typical one-day move over the prior eight quarters.

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