Electronic Arts will report earnings after tomorrow's close
Earnings season hits high gear this week, with video game maker Electronic Arts Inc. (NASDAQ:EA) among the many names set to report. Specifically, the "Star Wars: Battlefront" creator will unveil its fiscal third-quarter results after tomorrow's close, and despite EA stock's negative earnings reaction last quarter, options traders have been loading up on calls ahead of the event. Below, we'll take a closer look at EA shares, and see how speculators have been positioning themselves ahead of earnings.
On the charts, Electronic Arts stock is up nearly 17% since dipping below the century level in early December. And while the shares briefly pulled back from the nearly three-month high of $118.67 they hit last Tuesday, they quickly bounced near $114 -- home to their formerly resistant 120-day moving average, and a 61.8% Fibonacci retracement of their plunge from last August's record high to the December low. Today, EA was last seen trading up 0.7% at $116.00.
Options traders, meanwhile, have been initiating long calls relative to puts at a quicker-than-usual clip in recent weeks. At the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), the security's 10-day call/put volume ratio of 3.55 ranks in the elevated 89th annual percentile.
Likewise, EA's Schaeffer's put/call open interest ratio (SOIR) of 0.34 is docked below 99% of comparable readings taken in the past year. In other words, short-term speculators have rarely been more call-skewed toward the stock.
Drilling down, peak front-month open interest is found at the February 110 and 115 calls, where more than 47,000 contracts collectively reside. Data from the major options exchanges confirms significant buy to open activity at each strike, suggesting options traders are betting on a post-earnings boost for EA shares.
Historically speaking, the stock tends to perform well after earnings. Though EA shares fell 4.3% in the session immediately following the company's results last November, the stock has posted a single-session post-earnings gain in five of the past eight quarters. On average, Electronic Arts as moved 5.4% in the session subsequent to earnings, regardless of direction, with the options market pricing in an in-line swing of 5.7% this time around, based on at-the-money implied volatility data.