Options traders have been approaching KMX and BB differently
Tomorrow Wall Street will have earnings releases from CarMax, Inc (NYSE:KMX) and BlackBerry Limited (NYSE:BB). Both reports are due out before the opening bell, and volatile moves are expected from KMX and BB shares. Let's take a look at how traders have been approaching the stocks.
For KMX, its recent earnings history has been mostly upbeat, with six of the past eight earnings reactions going to the upside. On average, the shares have swung 4.7% the day after reports during the past two years, but this time the options market is pricing in a move double that of 9.5%.
Ahead of earnings, there's been a huge increase in interest for long puts, suggesting traders are betting on a move lower from the car sales specialist. The 10-day put/call volume ratio at the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) stands at 3.51, ranking in the 88th annual percentile. Similarly, its Schaeffer's put/call open interest ratio (SOIR) comes in at 4.39, only 5 percentage points from an annual high, showing put open interest more than quadruples call open interest among contracts expiring within three months.
This put-skew is due to recent increases at the April 57.50, 58, and 61 puts, with most of the trades occurring at the ask price. These three contracts are now the top open interest positions for CarMax. The weekly 3/29 59-strike put also saw a large rise in open interest during the past 10 days.
On the charts, the security is trading at $63.77, recently pushing past the 80-day moving average and a trendline connecting lower highs since late October. The equity will now face off with the $65-$70 area that blocked its last two breakout attempts.
Hitting BB next, we have data on the last five earnings releases, and three of the reactions for the stock have been positive. On average, the shares have moved 7.3%, and this time the options market is expecting an almost 11% swing in either direction for Friday's trading.
While the options activity on KMX has been put-heavy, BlackBerry speculators have loaded up on calls. For instance, the SOIR for the tech issue stands at 0.22, showing that call open interest is almost five times that of put open interest among near-term contracts. Moreover, this reading ranks 2 percentage points from a 52-week bottom.
On the charts, BB shares have turned lower after running into their 200-day moving average, checking in at $8.71, at last check. Their 2019 advance of 22.5% sounds impressive, but like many stocks, that's coming off a late-December low, skewing the year-to-date return.
