VMW Shares Slice Through Chart Support During M&A Reports

Long calls have been popular in recent weeks on VMW

by Josh Selway

Published on Aug 15, 2019 at 1:29 PM

VMware, Inc. (NYSE:VMW) is moving sharply lower today, down 5.7% at $144.38, due to reports that the company is in talks to buy Pivotal Software (PVTL). This move is important for two reasons. For one, the company is scheduled to report earnings next week, after the close on Aug. 22, and secondly, the price action puts VMW shares below long-term support on the charts.

More specifically, data from Schaeffer's Senior Quantitative Analyst Rocky White shows that the software concern has historically performed well after meet-ups with the 52-week moving average, with the stock averaging a one-month return of 4.1% following the last seven signals. As you can see on the chart below, VMware has moved well below this trendline.

vmw stock chart aug 15

The pullback could be bad news for options traders, who've been picking up long calls at an accelerated clip. This is according to the 10-day call/put volume ratio of 2.88 at the International Securities Exchange (ISE), Cboe Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), which ranks in the 81st annual percentile. In today's trading, calls and puts are both seeing unusual volume. Of note, there are new positions opening at the October 170 call.

Looking back at VMW's earnings history, option bulls will be hoping for a better showing this time out than last quarter, when the shares fell 7.4% the day after earnings. Going back the last two years, the stock has averaged an after-earnings swing of 4.3%, but this time around the options market is pricing in a much bigger move of 9.4%.


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