Earnings Preview: Adobe Systems Incorporated

While puts are popular today ahead of Adobe Systems Incorporated (NASDAQ:ADBE) earnings, calls are still king

Sep 20, 2016 at 3:01 PM
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Adobe Systems Incorporated (NASDAQ:ADBE) is counting down the minutes until its earnings reveal tonight, and the stock's short-term options are flying off the shelves at a rapid-fire rate. ADBE is up 23% so far in 2016, and has managed to rebound over 40% since its February lows, resuming its long-term quest for record highs, including the all-time high of $104.16 recorded on Sept. 2. Today, ADBE is sitting up 0.6% at $100.24 ahead of earnings.

In the option pits, puts are trading at four times their normal daily volume, with bears buying to open the October 100 put, betting on a post-earnings fall into double-digit territory for ADBE. Still, call buying is once again the dominant trend, with bullish traders buying to open October 105 calls, which would move into the money on even higher highs for ADBE, and is already home to peak open interest among all series of options. 

From a broader perspective, bulls have ruled ADBE pits recently. ADBE's 10-day call/put volume ratio at the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) of 3.78 sits at an annual peak, indicating a bigger-than-usual preference for long calls over puts during the past two weeks. 

Historically, ADBE has averaged a one-day, post-earnings move of 4.2% over the last eight quarters, with results evenly split between positive and negative earnings reactions. This time around, the market is pricing in a 5.5% move in either direction, per near-term implied volatility data. However, Adobe Systems Incorporated's (NASDAQ:ADBE) Schaeffer's Volatility Scorecard (SVS) sits at a relatively low 24, indicating ADBE has tended to fall short of option traders' volatility expectations during the past year.

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