Earnings Season Highlights

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A collection of noteworthy post-earnings reactions
Published on May 2, 2024 at 12:25 PM
  • Buzz Stocks

Tech names Fastly Inc (NYSE:FSLY) and Qualcomm Inc (NASDAQ:QCOM) just announced their earnings results, with staggeringly different outcomes for the stocks. 

Cloud stock FSLY is down 34.3% at $8.50 at last glance, trading at 52-week lows and on track for its worst single-session percentage loss ever. The company announced mixed first-quarter results, with wider-than-expected losses per share alongside a revenue beat, and lowered its full-year revenue forecast. 

BofA Global Research downgraded Fastly stock to "underperform" from "buy" after the event, cutting its price target to $8 from $18, while no fewer than four other analysts slashed their price objectives. Options traders are chiming in as well, with the 23,000 calls and 17,000 puts exchanged so far already representing 3.3 times the average daily volume. The weekly 5/3 8.50-strike call is the most popular, where new positions are being opened. 

Qualcomm stock, meanwhile, is up 10.3% at $181.00, after strong fiscal second-quarter results. The semiconductor giant also lifted its third-quarter revenue forecast, due to improving demand in China. To follow, fewer than nine analysts lifted their price targets, with the highest from Bernstein to $220. 

Today's pop has QCOM trading at two-year highs, jumping above pressure at the 40-day moving average at the $170 level. Since the start of the year, the equity is up roughly 24%. 

So far today, Qualcomm stock has seen 98,000 calls and 53,000 puts cross the tape, which is all together 3.6 times the average daily options volume. The weekly 5/3 180-strike call is the most active contract, where new positions are opening. 

Published on May 2, 2024 at 11:52 AM
Updated on May 2, 2024 at 11:55 AM
  • Midday Market Check

         

Published on May 2, 2024 at 11:35 AM
  • Strategies and Concepts

It's been a wild year already on Wall Street, with many speculating on the Federal Reserve's future interest rate moves. This volatility isn't likely to fade, considering the 2024 presidential election is right around the corner. Many investors are still nervous about a substantial drop, but there's an options strategy for shareholders who want to minimize their capital at risk, without totally exiting the game: The stock replacement strategy.

The stock replacement strategy involves replacing shares of an equity or exchange-traded fund (ETF) with in-the-money call options. This allows traders to continue to benefit from the underlying's move higher, while also decreasing their dollars at risk in case of a sudden downturn.

When choosing which call options to purchase, traders should look at deep in-the-money options with a high delta. As the underlying equity increases in value, the value of an option with a delta close to 1 will increase by almost the same amount, so traders are able to limit their risk without sacrificing much profit. In other words, replacing shares with call options allows traders to maximize their leverage.

Let's look at an example to see how this strategy might work. Assume Traders A, B, and C all bought 100 shares of Stock XYZ when it was trading at $50 a year ago. Since then, XYZ has doubled to trade at $100 per share -- meaning they all have $5,000 in profits -- but the stock is now bumping up against potential century-mark resistance.

Trader A decides it's time to take profits and sells her 100 shares for a total of $10,000 -- a $5,000 profit from her initial investment. If XYZ drops 10% to $90 over the next few months, Trader A's decision to sell would prove wise and well-timed. If XYZ surges 10% to $110, however, Trader A has missed out on another $1,000 in profits.

Trader B, meanwhile, decides to ride out the potential speed bump near $100, and holds on to his shares of XYZ. If the stock falls 10%, his net profit would stand at $4,000 -- a $1,000 hit. If XYZ rallies to $110, Trader B's shares will now be worth $11,000 -- a $6,000 gain on his initial investment.

And then there's Trader C, who decides to implement the stock replacement strategy in the face of round-number resistance. She sells her XYZ shares for $100 apiece, or $10,000 total, pocketing $5,000 from her initial investment. She then uses some of those proceeds to buy a 95-strike call on XYZ, currently asked at $8, or $800 (x 100 shares per contract).

If XYZ drops 10% by options expiration, the 95-strike call will expire worthless. Trader C will forfeit the $800 paid for the calls, but has still netted a healthy profit of $4,200 from her initial $5,000 investment in XYZ. That's still $200 more than Trader B's take-home profit in the same situation.

If XYZ surges to $110 in the near term, extending its rally, the deep in-the-money 95-strike call will sport an intrinsic value of $15, or $1,500 (x 100 shares) -- a gain of $700 from her call purchase. Including the shares she sold originally, Trader C would walk away with a net profit of $5,700 on XYZ -- very close to Trader B's profit in the same situation. Or, Trader C could exercise those options and buy her 100 shares back at $95 apiece -- a huge discount to their current price of $110.

In conclusion, the stock replacement strategy allows traders to profit from a continued rally in their shares, but limit risk in the event of a downturn. Of course, nervous traders could also consider buying protective puts on the underlying, but that strategy merely locks in a selling price in the event of a downturn (like "insurance").

Published on May 2, 2024 at 10:55 AM
Updated on May 2, 2024 at 11:07 AM
  • Buzz Stocks

Peloton Interactive Inc (NASDAQ:PTON) reported disappointing fiscal third-quarter results before the open today. The company also announced it will cut 15% of its workforce -- roughly 400 jobs -- and that CEO Barry McCarthy is stepping down. PTON was up as much as 8.6% earlier, but has since pivoted sharply lower, down 7.1% at $2.99 at last glance. 

Peloton stock isn't too far removed from its April 25 record low of $2.91, and an executive today stated that the home fitness equipment name is still dealing with the whiplash that happened after Covid-19. On the charts, today's earlier rally was rejected by pressure at the 40-day moving average. Year to date, the equity is down 50.6%. 

Call trades are popular in the options pits today, with 41,000 exchanged so far in comparison to 14,000 puts. Overall, PTON has already seen 2.4 times its average daily options volume, with the most activity by far at the October 5 call, where new positions are being bought to open. 

It's also worth noting that short interest represents 15.3% of the stock's available float. It would take shorts nearly four days to cover, at PTON's average pace of trading. 

Published on May 2, 2024 at 10:45 AM
  • Buzz Stocks

DoorDash Inc (NASDAQ:DASH) reported better-than-expected first-quarter revenue, as a rise in grocery orders helped offset weaker demand for restaurant deliveries. The company issued a lackluster profit forecast for the fiscal second quarter, though, due to rising marketing and research costs. DASH was last seen 13.1% lower at $110.73.

No fewer than nine brokerages cut their price objectives on DASH, with Piper Sandler adjusting from $127 to $115. The 12-month consensus target price of $135.57 is still a 22.6% premium to current levels, however, and 19 of 31 firms in coverage still DASH a "buy" or better.

Options bears are piling on as well, with 19,000 puts and 7,776 calls exchanged so far -- overall volume that is nine times the intraday average amount. The most active contract is the weekly 5/3 110-strike put, but traders are now opening positions at the 98-strike put in that series.

Pessimism became prevalent in the last several weeks. At the International Securities Exchange (ISE), Cboe Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), the equity's 50-day put/call volume ratio of 2.16 sits higher than 85% of readings from the past 12 months.

DoorDash stock could today close below the 40-day moving average for the first time this year, and earlier gapped to its lowest level since February. Shares carry an 18.6% quarter-to-date deficit, and are on track for their third-straight daily loss and worst day since May 2022.

Published on May 2, 2024 at 10:26 AM
  • Intraday Option Activity
  • Buzz Stocks

Carvana Co (NYSE:CVNA) stock is surging today, up 35% to trade at $117.69, after the online used-car retailer reported first-quarter earnings of 23 cents per share -- much higher than the expected loss of 64 cents -- on revenue of $3.1 billion. Better yet, the firm also issued a better-than-expected guidance for the current quarter.

Morgan Stanley and J.P. Morgan Securities both upgraded CVNA to "overweight," and no less than eight analysts raised their price targets. There's room for more upgrades and price target hikes, too, considering 18 of 20 covering brokerages rate the equity a "hold" or worse and the average 12-month target price of $86.31 is a 25.3% discount to current levels.

The shares are trading at their highest level since March 2022, and on track for their biggest single-day percentage gain in roughly two years. The stock now boasts a more than 1,500% year-over-year lead.

A short squeeze could be in play, considering short interest is down 2.9% in the last two reporting periods, yet the 28.57 million shares sold short make up 27% of the security's available float. This represents nearly one week's worth of pent-up buying power, at the stock's average pace of trading.

Options volume is running at nine times the intraday average already today, with 53,000 calls and 46,000 puts exchanged at last check. The most popular contract is the weekly 5/3 130-strike call, while new positions are being bought to open at the 110-strike put from the same series.

Published on May 2, 2024 at 9:25 AM
  • Opening View

Futures on Wall Street are higher Thursday, as traders continue to digest comments from Federal Reserve Chairman Jerome Powell that all but ruled out another interest rate hike. Additionally, last week's jobless claims inched up to 208,000 -- historically low levels -- while the U.S. trade deficit was flat in March. Futures on the Dow Jones Industrial Average (DJIA) and Nasdaq-100 Index (NDX) are both up triple digits, while S&P 500 Index (SPX) futures are above fair-market value.

Continue reading for more on today's market, including: 

  • The worst REIT stock to own in May.
  • Fed speeches and consumer sentiment data ahead.
  • Plus, Peloton's C-suite shakeup; Carvana's earnings; and Fastly's weak guidance. 

Futures Chart May 022024

5 Things You Need to Know Today

  1. The Cboe Options Exchange (CBOE) saw more than 1.3 million call contracts and 1.1 million put contracts exchanged Wednesday. The single-session equity put/call ratio rose to 0.84, while the 21-day moving average slipped to 0.70.
  2. Peloton Interactive Inc (NASDAQ:PTON) said CEO Barry McCarthy is leaving his position. The home fitness equipment company is also cutting about 400 jobs, or 15% of its workforce. Up 10.9% before the bell, PTON is still down 47.1% in 2024. 
  3. Online used car seller Carvana Co (NYSE:CVNA) reported a blockbuster first quarter, turning in a surprise profit and issuing an upbeat current-quarter forecast. Morgan Stanley also upgraded the security to "overweight." In response , CVNA is up 36.6% ahead of the open, looking to add to a 1,106.2% year-over-year lead.
  4. Fastly Inc (NYSE:FSLY) stock, meanwhile, sports a 37.1% premarket deficit. The cloud services company is brushing off better-than-expected first-quarter results after issuing weaker revenue guidance for 2024. So far this  date, FSLY is 27.4% lower. 
  5. More earnings reports and jobs data are slated for the end of the week.

OV Buzz Chart May 2

Asian Markets Finished Session Scattered

Asian stocks were all over the place today. Hong Kong’s Hang Seng led the region with a 2.4% pop, with tech and electric vehicle (EV) stocks leading the charge -- the latter up after upbeat April delivery numbers. The Shanghai Composite remained closed for holiday. Japan’s Nikkei shed 0.1%, even after the yen broke out against the dollar, ballooning to its strongest level in 11 days amid highly-suspected government ‘propping up.’ South Korea’s Kospi gave back 0.3%, as consumer prices for April came in at 2.9%, below the 3.1% number from March.

European bourses are lower at last check, as investors unpack earnings from regional giants such as drugmaker Novo Nordisk and energy giant Shell. London’s FTSE 100 is up 0.4%, the French CAC 40 is 0.6% lower, and the German DAX is rising 0.1%.

Published on May 2, 2024 at 8:01 AM
  • The Week Ahead
          
Published on May 1, 2024 at 4:23 PM
  • Market Recap

The central bank voted to hold rates steady, with no hints as to cuts any time soon, as inflation data remains stubborn. However, Federal Reserve Chairman Jerome Powell's statement expressing the unlikelihood of a hike injected some optimism into Wall Street later in the day. Fresh off April losses for all three major benchmarks, the Dow added 87 points to kick off the month -- but pared gains from its session highs -- while the S&P 500 and Nasdaq finished modestly lower amid a volatile session. 

Continue reading for more on today's market, including:

  • A look at DraftKings stock ahead of tomorrow's report
  • CVS Health stock crashes as higher medical costs dent profits.
  • Plus, election year analysis, and two post-earnings reactions to unpack.

Summary 0501

NYSE Nasdaq 0501

5 Things to Know Today

  1. A new exchange-traded fund (ETF) helps eliminate risk by using "flex" call options. (MarketWatch)
  2. Key takeaways from the Fed's interest rate decision. (Bloomberg)
  3. Will "sell in May and go away" hold true this year?
  4. Options traders target Pinterest stock after forecast hike. 
  5. Starbucks stock hit with bear notes after earnings. 

Earnings 0501

UVOL 0501

Oil Falls After Rise in Weekly Crude Supplies

Oil prices moved lower, after U.S. data showed a surprise climb in weekly crude inventories of 7 million barrels. West Texas Intermediate (WTI) crude fell $2.93, or 3.6%, to $79 a barrel. 

Gold prices inched higher after the latest Fed decision, with June-dated gold futures adding 0.4% to settle at $2,312.70 per ounce. 

Published on May 1, 2024 at 3:20 PM
  • Best and Worst Stocks

Real estate investment trust (REIT) Simon Property Group Inc (NYSE:SPG) has fallen since its March 21 two-year high of $157.82, last seen trading at $142.03. Support at the $140 level has mostly kept the stock afloat in 2024, but we'll see how it fares during a historically bearish month. 

Simon Property Group stock is second on Schaeffer's Senior Quantitative Analyst Rocky White's list of 25 worst S&P 500 Index (SPX) stocks in May in the last decade. SPG averaged a 3.5% loss for the month, finishing positive only twice out of those 10 years.

From the equity's current perch, a similar move would place it below $137. It's also worth noting recent pressure at the SPG's 100-day moving average. So far this quarter, SPG is down 8.7%.

SPG May1 

The security looks to be a good target for premium buyers, based on its Schaeffer's Volatility Scorecard (SVS) of 84 (out of 100). In other words, the shares have regularly made bigger moves than options traders were pricing in during the last 12 months.

Published on May 1, 2024 at 1:55 PM
  • Editor's Pick
  • Earnings Preview

DraftKings Inc (NASDAQ:DKNG) steps into the earnings confessional after the stock market closes on Thursday, May 2. Ahead of the event, the sports betting stock is testing a key trendline on the charts, and has lost a little of its luster from its first-quarter breakout. The good news: DKNG historically tends to outperform after earnings reports.

DraftKings stock has closed higher the session after reporting in six of its past eight quarters, and by at least double digits twice in the last year of reports. The shares average a 12.5% swing, regardless of direction, after their last eight earnings events. This time around, the options market is pricing in a larger post-earnings move of 15.6%.

DKNG was last seen trading at $41.34, and has taken a 16.7% haircut off its March 27 multi-year high of $49.57. Despite the drawdown, the shares are testing the 80-day moving average, an ascending trendline that hasn't been breached on a closing basis since early November. 

Even with technical support stepping up to the plate, the pullback has the equity nearing oversold territory, per its 14-day Relative Strength Index (RSI) of 33. 

DKNG Stock Chart

Published on May 1, 2024 at 11:48 AM
Updated on May 1, 2024 at 11:49 AM
  • Midday Market Check

         

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