Silver Wheaton Stock Presents Pre-Earnings Options Bargain

Options traders are betting Silver Wheaton stock won't see a repeat of last quarter's post-earnings spiral

by Kirra Fedyszyn

Published on Mar 21, 2017 at 11:24 AM
Updated on Jun 24, 2020 at 10:16 AM

Metals stock Silver Wheaton Corp. (USA) (NYSE:SLW) is due to report fourth-quarter earnings after the close tonight. While the SLW stock's history of post-earnings price action is decidedly mixed, traders have plenty reason to be cautious, considering the shares fell more than 25% within two sessions after its most recent report last November. Still, for speculators brave enough to get in on the action, SLW options look like an unusually good bargain ahead of tonight's event.

Taking a quick step back, SLW shares have averaged a swing of 4.3% either way in the session subsequent to reporting in the past eight quarters. But four of the last five reports have resulted in a move lower, including last quarter's single-session decline of nearly 17%. Currently, options traders are pricing in a slightly wider move of 4.8% regardless of direction for tomorrow's trading, though speculators are largely sitting on the sidelines today, with options volume running at just over half the expected intraday pace.

That said, it's an attractive time to purchase premium on SLW right now. Despite the impending earnings event, near-term options are pricing in unusually low volatility expectations. This is per the stock's Schaeffer's Volatility Index (SVI) of 37% and 30-day at-the-money implied volatility of 37.4% -- in the 9th and 4th percentiles of their respective annual ranges. What's more, SLW boasts a Schaeffer's Volatility Scorecard (SVS) of 94, indicating the options market has significantly underpriced the equity's ability to make big moves over the past 12 months.

Though volume has been running light on an absolute basis, options traders have been targeting long calls over puts in recent months. Specifically, SLW's 50-day call/put volume ratio of 4.39 across the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) is seated in the top quartile of all readings from the last year. Meanwhile, put selling has also been popular, with 2.9 puts sold to open for each one bought over the past 10 weeks.

Outside of the options pits, traders and analysts seem to share this broadly bullish outlook. Short interest on SLW fell by 6.5% from its record-high levels in the two most recent reporting periods, and currently accounts for just 2.4% of the stock's total float. Plus, 11 out of 12 analysts rate the shares a "buy" or better, without a single "sell" rating in sight. The average 12-month price target of $28.27 also sits well overhead, even after Deutsche Bank cut its target by $1 to $31 this morning.

Technically speaking, Silver Wheaton stock hasn't been much to write home about, though. At $19.95, the shares are off 36% from their August three-year high, and have spent most of a week running into resistance at the 320-day moving average. Moreover, heavy call open interest in the front-month April series resides at the 20 and 21 strikes, which could reinforce trouble in this overhead neighborhood for shares of Silver Wheaton Corp. (USA) (NYSE:SLW).

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