Earnings Preview: Costco Wholesale Corporation and PepsiCo, Inc.

Shares of Costco Wholesale Corporation (COST) and PepsiCo, Inc. (PEP) have historically been unpredictable in the aftermath of recent earnings reports

Alex Eppstein
Sep 28, 2016 at 10:51 AM
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BlackBerry Ltd (NASDAQ:BBRY) earnings are front and center this morning, but it will be a different story tomorrow. Indeed, a number of prominent companies will hit the earnings confessional, including retailer Costco Wholesale Corporation (NASDAQ:COST) and soda specialist PepsiCo, Inc. (NYSE:PEP). Below, we'll examine how options traders have been placing their bets on COST and PEP ahead of earnings, and how the companies have historically fared under the quarterly spotlight.

COST is scheduled to report earnings tomorrow night. Over the last eight quarters, the stock has been a mixed bag in the session after the event, rallying four times and struggling the other four. Most recently, though, following the company's May report, the shares surged 3.6% in the session subsequent to earnings.

A repeat performance could trigger a mass exodus among option bears -- which could add fuel to the fire. In the last 10 sessions, traders have bought to open 1.34 COST puts for every call at the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX). This put/call volume ratio ranks in the top quartile of its annual range, suggesting traders have shown a stronger-than-usual appetite for long puts over calls of late. Likewise, Costco Wholesale Corporation's Schaeffer's put/call open interest ratio (SOIR) of 1.44 is only 2 percentage points from an annual put-skewed peak. At last check, the stock was off 0.5% at $149.74.

Meanwhile, PEP will report earnings bright and early tomorrow. In five of the past eight post-event sessions, the shares have settled lower -- though, the average move in either direction has been a relatively modest 1.1%. On the charts, the beverage stock has advanced a rock-solid 7.7% year-to-date at $107.58, after pulling back from its mid-July record peak of $110.94.

Expectations are pretty bearish on the options front. Specifically, PepsiCo, Inc.'s 10-day ISE/CBOE/PHLX put/call volume ratio of 4.95 ranks in the 97th annual percentile, with roughly five puts bought to open for every call in the past two weeks. Echoing this, the stock's SOIR of 1.15 outstrips 60% of all readings from the prior year.

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