This GoPro Supplier Hopes to Buck Ugly Earnings Trend

AMBA stock hasn't enjoyed a positive earnings reaction since June 2016

Managing Editor
Nov 29, 2017 at 3:28 PM
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While earnings season has mostly wrapped up, some companies are still waiting for their turn in the spotlight. GoPro (GPRO) supplier Ambarella Inc (NASDAQ:AMBA) steps into the earnings confessional this week, reporting third-quarter earnings after the market closes tomorrow. Here's a closer look at AMBA stock's performance lately, and how options traders are playing the GoPro supplier ahead of earnings.

It's been a subpar year for AMBA stock. An earnings-induced bear-gap subsequently sent AMBA to an annual low of $40.06 on Sept. 6, though the stock has recovered about 35% since then. At last check, AMBA was down 2.5% to trade at $54.16, trading right around breakeven for 2017.

The semiconductor name has a dismal history of post-earnings price action, with the shares plummeting in the session following seven of its last eight earnings reports. As alluded to above, AMBA stock fell 22.4% after earnings last September, and suffered a 10.2% post-earnings drop in June. In fact, the security hasn't enjoyed a positive earnings reaction since reporting in June 2016.

The equity has averaged a one-day post-earnings move of 9.4%, regardless of direction, over the last eight quarters. This time around, the options market is pricing in a much larger one-day swing of 14.3%, based on the stock's at-the-money (ATM) implied volatility (IV) data.

Another poor earnings result would be a boon to short sellers. Although short interest decreased during the last reporting period, the 5.1 million shares of AMBA sold short represents a healthy 15% of the stock's total available float, or more than seven sessions' worth of pent-up buying demand.

AMBA options traders, however, have kept the faith. At the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), the stock's 50-day call/put volume ratio of 3.80 ranks in the 79th annual percentile, meaning calls have been bought to open over puts at a faster-than-usual pace in the past 10 weeks. However, those buying to open out-of-the-money calls could be Ambarella shorts seeking an options hedge.

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