UBS Sends Up Warning Sign Before Earnings

UBS shares could find a ceiling at their 120-day moving average

Oct 16, 2019 at 1:24 PM
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UBS Group AG (NYSE:UBS) is slated to report earnings next Tuesday, Oct. 22. While most other bank earnings have been well-received so far, the shares of UBS recently flashed a historically bearish signal on the chart. But however UBS reacts, one thing is certain: near-term options are pricing in a much bigger-than-usual swing next week.

Shares of the Swiss bank have been in channel of lower highs since peaking north of $20 in early 2018. While the equity has rebounded roughly 11% since touching an all-time low of $10.12 in mid-August, UBS is back within striking distance of its 120-day moving average.

Over the past three years, there have been five similar run-ups to this trendline, after which UBS stock was lower one month later each time, averaging a loss of 7.2%, per data from Schaeffer's Senior Quantitative Analyst Rocky White. From the security's current perch at $11.24, a similar retreat would put the bank stock around $10.43.

UBS stock chart 1016

UBS stock has averaged a one-day post-earnings swing of just 1.5% after the bank's last seven earnings reports, regardless of direction. In fact, after the firm reported in July, the shares moved 1.5% in the subsequent session, snapping a streak of three straight negative earnings reactions. This time around, however, near-term options are pricing in a much bigger 9.4% move for UBS, per at-the-money implied volatility data.

As far as direction, though, it appears recent option buyers are expecting a post-earnings jump for the shares. On the International Securities Exchange (ISE), Cboe Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), traders have bought to open more than 14 UBS calls for every put during the past two weeks. This ratio registers in the 76th percentile of its annual range, suggesting the recent call buying is higher than normal.

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