Earnings Season Highlights

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A collection of noteworthy post-earnings reactions
Published on Dec 22, 2016 at 10:48 AM
Updated on Mar 19, 2021 at 7:15 AM
  • Trader Content
Our recommended Alibaba Group Holding Ltd (NYSE:BABA) December 105 put just delivered a 90.6% winner for subscribers of our Leverage service. Below, we'll look back at what made the trade so attractive, and how BABA stock performed following our recommendation.

BABA shares flashed a bearish signal the day of our put recommendation. Specifically, on Nov. 2, immediately following the company's earnings report, the stock's intraday high and low engulfed the prior day's high and low. Plus, BABA closed near its lows. The result was a bearish "outside day." At the time, we had observed that a few other stocks had exhibited similar price action on earnings day, and experienced immediate follow-through weakness -- including Tesla Motors Inc (NASDAQ:TSLA), Caterpillar Inc. (NYSE:CAT), Abbot Laboratories (NYSE:ABT), Hawaiian Holdings, Inc. (NASDAQ:HA), Colgate-Palmolive Company (NYSE:CL), and Texas Instruments Incorporated (NASDAQ:TXN).

In addition, the e-tail stock was approaching a number of key technical levels. First there was the overhead 20-day moving average, which had served as support in July and September, but appeared to be switching roles to resistance, having largely capped BABA's upside in the latter half of October. Also, the shares were breaking down from the $102 area, or 50% above Alibaba's IPO price of $68, and were breaching support at the round $100 century level, home to heavy put open interest.

On top of these technical warnings signs, we observed high levels of overhead call open interest, which can translate into resistance. Plus, 15 of 16 analysts had "buy" or better ratings on BABA, with not one "sell" recommendation on the books -- leaving the door open for downgrades.

After our subscribers received the trade recommendation at midday on Nov. 2 and entered the position, BABA started heading south. In particular, the 20-day moving average asserted itself as resistance, consistently ushering the stock lower. While we failed to see any downgrades, per se, the shares did get hit with a price-target cut at Deutsche Bank in mid-November. Plus, Temasek Holdings cut its stake in the internet retailer by 26.8%. In other words, there were still signs of waning optimism on the stock translating into losses.

Beyond that was Alibaba's Single's Day slide on Nov. 11. Despite smashing its previous records with $17.8 billion worth of gross merchandise volume (GMV) (and year-over-year growth of more than 32%), expectations were so high leading into the event that a failure to hit a projected $20 billion GMV triggered aggressive selling.

Last Friday, our recommended December 105 put was closed at a profit of 90.6%. Below is a chart showing Alibaba Group Holding Ltd's (NYSE:BABA) performance over the past six months, including its rapid sell-off after our recommendation.


baba daily dec 22


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Published on Dec 22, 2016 at 11:45 AM
Updated on Mar 19, 2021 at 7:15 AM
  • Stocks On the Move
  • Intraday Option Activity
  • Stock Market News

Weight Watchers International, Inc. (NYSE:WTW) calls are flying across the tape at an incredible pace, after the weight loss specialist revealed its new "Live Fully" ad campaign, which features shareholder and board member Oprah Winfrey. In the campaign, Oprah sings the praises of the Weight Watchers system, saying the program has given her the chance to lead a "fantastic and full life." As WTW's stock surges, call players are drilling down -- with volume on track to settle in the 98th annual percentile -- and a number of speculators are eyeing even more near-term upside.

WTW is currently trading up 14.4% at $12.04, though the shares are still down more than 56% from their December 2015 highs. Meanwhile, today's surge has WTW testing its 20-month moving average, which has contained the shares for all but one month of the past year.

161222wtw

Against today's upbeat technical backdrop, calls are crossing the line at 24 times the average intraday pace, with 8,283 contracts traded. And while puts are also crossing at a faster-than-usual pace -- 14 times what's typically seen at this point of the day -- calls are still in the lead by a more than 3-to-1 margin. Drilling down, the weekly 12/23 11.50-strike call has seen notable attention, where it appears speculators are buying to open the calls, betting on WTW to extend its lead north of the strike through expiration at tomorrow's close.

Widening the lens, WTW's Schaeffer's put/call open interest ratio (SOIR) of 1.41 sits in the 72nd percentile of its annual range, indicating traders are more put-skewed than usual among options set to expire in three months or less. In fact, WTW's top front-month open interest position is the January 2017 13-strike put, with 4,472 contracts outstanding.

Nevertheless, call buyers have been active in recent weeks, per WTW's 10-day call/put volume ratio of 115.43 at the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) -- which sits just 2 percentage points from an annual peak. The majority of this action has centered at the April 13 call, and given its out-of-the-money status, it's possible some of the activity is a result of short sellers hedging their bearish bets against any upside risk. short interest accounts for more than 50% of WTW's float, or 23.8 times the stock's average daily volume.

Regardless, near-term premium buyers are getting a relative bargain on WTW options. The security's Schaeffer's Volatility Index (SVI) of 49% sits in the 5th percentile of its annual range. This indicates the options market is currently pricing in low volatility expectations for Weight Watchers International, Inc.'s (NYSE:WTW) short-term options.

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Published on Dec 22, 2016 at 11:56 AM
Updated on Mar 19, 2021 at 7:15 AM
  • Expectational Analysis

Mining stock Freeport-McMoRan Inc (NYSE:FCX) has been an outstanding performer on the charts this year, roughly quadrupling in value from its January lows. This represents a significant turnaround, considering the stock lost 71% in 2015, making it one of the worst performers of the year. Off 0.5% at $13.96 today, FCX has recently pulled back to a significant trendline. And even if this signal doesn't always predict a move higher, the equity is currently presenting an attractive opportunity for options traders.

As of this Monday, FCX had pulled back to its rising 40-day moving average -- a trendline that kept the stock's losses in check in late October, after previously serving as resistance. Of note, the 40-day moving average also now coincides with FCX's late-April highs, as well as a 50% retracement of its 2015 highs and 2016 lows.

FCX Daily Chart December 22

According to data from Schaeffer's Senior Quantitative Analyst Rocky White, FCX has touched this moving average four times in the past three years, and the resulting action has been mixed. Specifically, five days after such a signal, the stock has posted an average return of 1.7%, but has been positive only half the time. Likewise, FCX has mustered a positive 21-day return just 50% of the time, but with a very healthy typical return of 7%.

Speaking of bulls, optimism toward FCX has been picking up of late. In the options pits, the stock's calls have been flying off the shelves, purchased at nearly three times the rate of puts over the past two weeks. Specifically FCX's 10-day call/put volume ratio at the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) comes in at 2.59 -- just 8 percentage points from an annual high. Notably, FCX is among the 20 stocks with the highest options volume over the past 10 sessions, with more than half a million contracts changing hands, and calls outweighing puts.

Elsewhere, bears have been hitting the exits. Short interest on FCX fell by nearly 34% during the two most recent reporting periods, and now represents a modest 6.3% of the security's total float. However, the shares could get a boost if analysts begin raising their opinions. Of the 16 firms following the stock, 75% rate FCX a "hold" or worse, despite its months-long run up the charts.

Whether FCX heads higher or lower, near-term options traders could pick up quite a bargain at the moment. With a Schaeffer's Volatility Index (SVI) of 47% -- in the low 5th percentile of its annual range -- the stock's short-term options are pricing in historically low volatility expectations. Meanwhile, Freeport-McMoRan Inc (NYSE:FCX) boasts a Schaeffer's Volatility Scorecard (SVS) of 94, indicating the options market has seriously underpriced the stock's ability to make big moves on the charts over the past 12 months.

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Published on Dec 21, 2016 at 9:18 AM
Updated on Mar 19, 2021 at 7:15 AM
  • Analyst Upgrades
Analysts are weighing in on Dow stock Nike Inc (NYSE:NKE), drink distributor Monster Beverage Corporation (NASDAQ:MNST), and social media issue Yelp Inc (NYSE:YELP). Here's a quick roundup of today's bullish brokerage notes on NKE, MNST, and YELP.

  • NKE is set to jump 2.2% higher at the open, after the apparel manufacturer reported better-than-expected quarterly earnings, prompting a pair of bullish brokerage notes. Specifically, Jefferies and Susquehanna raised their respective price targets to $75 and $64 -- the former in record-high territory, with Jefferies predicting "margin recovery, China growth and improved signature bball" next year. That said, at least four other analysts trimmed their price targets. Since bottoming at $49.01 in early November, Nike Inc has been muscling higher, up 5.7% at $51.79 -- with an assist from the $50 half-century level. And with a majority of analysts still doling out "hold" or worse assessments, NKE stock has plenty of room to run on future upgrades.

  • Jefferies upgraded its rating on MNST to a "buy," and boosted its price target into all-time-high territory, at $58. Moreover, the brokerage firm dubbed the stock its top large-cap growth pick in the sector, citing accelerated sales growth, an attractive valuation, and strategic optionality should The Coca-Cola Co (NYSE:KO) acquire the remaining 82% of outstanding shares. Given these positive drivers, Monster Beverage Corporation is perched nearly 4% higher pre-market, after settling yesterday at $43.54. The stock badly needs a boost, too, considering it's lost 11% of its value since the start of the quarter. In the options pits, bears have been piling on. Specifically, MNST has amassed a 10-day put/call volume ratio of 3.29 at the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) -- in the high 94th percentile of its annual range.

  • YELP was dubbed RBC Capital's top 2017 small-cap internet pick, lifting the shares 0.8% ahead of the bell. At $37.14, it's been a sensational year for the shares, up 29%. As such, short sellers have been hitting the exits lately, with short interest plummeting nearly 25% in the most recent reporting period. That said, one-tenth of Yelp Inc's float remains dedicated to short interest. At the stock's average trading levels, this represents one week's worth of pent-up buying power.
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Published on Dec 21, 2016 at 9:28 AM
Updated on Mar 19, 2021 at 7:15 AM
  • Buzz Stocks

U.S. stock futures are trading above fair value, ahead of another day light of economic news. Among specific equities in the spotlight today are social media stock Twitter Inc (NYSE:TWTR),  retail interest Finish Line Inc (NASDAQ:FINL), and biotech Merrimack Pharmaceuticals Inc (NASDAQ:MACK). Here's a quick look at what's driving TWTR, FINL, and MACK.

  • TWTR is down 1% in electronic trading, following news two more executives are leaving the company, including its chief technology officer. The shares have been sliding since bumping into their 320-day moving average earlier this month, and, at $17.92, have lost 22.6% in 2016. Nonetheless, Twitter Inc call options have remained extremely popular in recent weeks. The stock's 10-day call/put volume ratio at the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) comes in at 3.98, which tops three-fourths of all comparable marks from the past year. 

  • FINL is set to get hit hard this morning, with the shares down 15% in pre-market action, after the company reported weak third-quarter sales and a disappointing outlook. No brokerage firms have yet to weigh in, but there is potential for downgrades, with six analysts rating the stock a "strong buy." Then again, the expected pullback would put Finish Line Inc in the $19.50 range, an area that acted as strong support last month. And it's not like FINL was underperforming, as the stock had added more than 27% year-to-date, going by last night's close at $23.01. 

  • MACK is down 9.6% ahead of the open, after the company said it was halting a drug trial for its breast cancer treatment, since an independent panel suggested it would not outperform similar treatments. Shares of Merrimack Pharmaceuticals Inc have been grinding lower since their April 2015 peak near $14, closing Tuesday at $5.37. The stock is heavily shorted, however, so not everyone would be a loser if today's sell-off comes to fruition. In fact, nearly one-third of MACK's float is sold short, which equates to more than 18 days' worth of buying power, based on average daily volumes. 

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Published on Dec 21, 2016 at 9:49 AM
Updated on Mar 19, 2021 at 7:15 AM
  • Analyst Downgrades
Analysts are weighing in on drink dynamo The Coca-Cola Co (NYSE:KO), shipping stock FedEx Corporation (NYSE:FDX), and Pantene parent Procter & Gamble Co (NYSE:PG). Here's a quick roundup of today's bearish brokerage notes on KO, FDX, and PG.

  • Jefferies cut its price target on KO to $43 overnight, while the company reached a $3.2 billion deal to buy Anheuser Busch Inbev SA NV's (ADR) (NYSE:BUD) African bottling business. Out of the gate, the stock is up 0.3% at $41.77. Longer term, however, The Coca-Cola Co has been a disappointment, stair-stepping its way lower since notching an April 11 high at $47.13. Not surprisingly, analysts are extremely bearish toward the underperforming stock, with 10 out of 13 doling out "hold" or worse recommendations.

  • FDX reported disappointing earnings last night -- though revenue topped the consensus estimate -- prompting mixed brokerage attention. Deutsche Bank and J.P. Morgan Securities cut their price targets to $209 and $230, respectively -- both still in record-high territory -- while Credit Suisse and Stephens raised their targets to $205 and $222, respectively. Out of the gate, FedEx Corporation is down 1.8% at $195.11, but remains a chip-shot from its all-time peak, touched last week. Bullish options speculators are likely smarting this morning amid the stock's pullback. During the last 10 weeks at the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), FDX has racked up a call/put volume ratio of 1.16 -- just 9 percentage points from an annual high

  • PG is down 0.5% at $84.18, after Stifel cut its rating to "hold" from "buy," and trimmed its price target to $86 from $88. On the other hand, Jefferies boosted its target price to $95, in previously uncharted territory. On the charts, Procter & Gamble Co has been retreating since topping out just above $90 in October, and its year-to-date lead now sits at just over 6%, well shy of the broader S&P 500 Index's (SPX) 11% gain. Meanwhile, at the ISE, CBOE, and PHLX, bearish bettors have been piling on. PG's 10-day put/call volume ratio is a top-heavy 4.14 -- just 1 percentage point from a 52-week peak.
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Published on Dec 21, 2016 at 10:00 AM
Updated on Mar 19, 2021 at 7:15 AM
  • Bernie's Content

The German lender Deutsche Bank AG (NYSE:DB) has been subject, in 2016, to a series of "market tantrums" centered around over-hyped fears -- from the crash in oil prices during the first quarter, to the mid-2016 "Brexit" shocker, to the unexpected U.S. election outcome in early November. And in the midst of these macro-level frights, DB itself was the subject of some serious, 2008-style existential concerns stemming from a Justice Department probe (a settlement to the tune of $37 million was announced on Friday).

And through all of this tumult -- which enveloped nearly the entirety of 2016 to date -- DB has managed to advance more than 50% from its late-September low. The stock is now trading above several long-term moving averages, including the 40-week and 320-day. We very much like that take-out of the 320-day, and of particular significance is the rise above the 40-week, which converged so powerfully with DB's 80-week and 160-week moving averages back in the first quarter of 2014 (as seen on the accompanying chart).

It seems likely, in the immediate aftermath of December options expiration, that DB's rally has been (at least in part) unwind-based. Put open interest is double that of calls, reflecting a clear degree of skepticism on the part of investors; however, implied volatility now stands at roughly half the enormous level that accompanied DB's September price lows. Another powerful indicator of the pessimism surrounding DB is the fact that not a single analyst has a "buy" rating on the stock, and finviz.com reports that the five most recent analyst ratings changes have been downgrades.

With DB having convincingly cleared its 40-week moving average, the expectation of an ensuing take-out of the 80-week, and a rally that will approach the 160-week, is implicit to the ultimate success of our recommended call option. And the "nowhere to go but up" sentiment backdrop helps assure price support on pullbacks as sideline money looks to establish new positions below peak levels.

DB weekly 1216 lg


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Published on Dec 21, 2016 at 10:09 AM
Updated on Mar 19, 2021 at 7:15 AM
  • Intraday Option Activity
Options traders have been growing increasingly skeptical of Marathon Petroleum Corp (NYSE:MPC) of late. At the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), MPC's 10-day put/call volume ratio has jumped to 2.61 from 0.21 over the past two weeks. What's more, the current ratio ranks just 7 percentage points from a 52-week peak, meaning puts have been bought to open over calls at a near-annual-high clip on the energy stock.

This heavy put trading was in full view in Tuesday's session, where 53,919 puts crossed the tape -- 14 times the average daily volume of 3,691, and an annual high for the number of MPC puts traded in a single session. As a point of comparison, fewer than 5,400 calls changed hands, slightly higher than the expected daily amount of 4,979 calls.

Nearly all of the day's put volume centered at the April 35 strike, due to a massive block of 22,853 that Trade-Alert suggests was bought to open for an initial cash outlay of $1.1 million (number of contracts * $0.50 premium paid * 100 shares per contract). What's more, a separate block of 14,481 April 35 puts also appears to have been bought to open for $0.50 apiece, resulting in a net debit of $724,050. While it's not clear if these two transactions are related, the expectation is the same -- for MPC stock to breach $35 by April options expiration. Risk is limited to the initial price paid, while profit will accumulate on a move below breakeven at $34.50 (strike less $0.50 premium).

Given the energy stock's strong technical backdrop, it's possible some of the recent put buying -- particularly at out-of-the-money strikes -- is a result of shareholders protecting paper profits against a pullback. In fact, the shares of Marathon Petroleum Corp (NYSE:MPC) haven't traded south of $35 since late June, and are up 47.6% since bottoming at a post-Brexit low of $32.84 on June 27 -- more recently, rising in step with crude futures. Plus, although the energy stock is down 1.9% today to trade at $48.46, it appears to have found a foothold in the $48.50 area, home to a 61.8% Fibonacci retracement of its July 2015 highs and February 2016 lows.

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Published on Dec 21, 2016 at 10:40 AM
Updated on Mar 19, 2021 at 7:15 AM
  • By the Numbers
Yesterday, we took a look at the 30 worst stocks to own during the week between Christmas and New Year's -- a list dominated by the real estate sector. Today, we'll see what history has to say about the best stocks to own during the same time period.

Courtesy of Schaeffer's Senior Quantitative Analyst Rocky White, the list below includes the 30 best performers during the post-Christmas week, when looking back 10 years. To qualify, stocks have to be optionable, have traded for at least eight years, and been perched above $10 at Monday's close. As you can see, precious metal stocks account for a disproportionate number of the outperformers, including Barrick Gold Corporation (USA) (NYSE:ABX) and Silver Wheaton Corp. (USA) (NYSE:SLW).


best stocks though new years dec 21

In the past decade, ABX has been positive during the last week of the year seven times. On average, the gold stock has advanced an impressive 2% over that span. A repeat performance would be much appreciated by shareholders, who have watched Barrick decline badly since topping out at a three-year high of $23.47 in early July -- and even slip below its 50% retracement level of its late-2015 lows and the aforementioned peak. At last check, the stock is down 1.7% at $14.09, dropped by a downgrade to "hold" from "buy" at TD Securities, which also slashed its target price by $7 to $18.

Plenty of options traders have been banking on a rebound. ABX sports a 10-day call/put volume ratio of 2.75 across the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) -- ranking in the bullishly skewed 86th annual percentile. Of course, with short interest recently rising, a portion of these calls -- especially at out-of-the-money strikes -- may have been purchased by short sellers hedging against a near-term breakout.

In any case, now is an ideal time to purchase premium on short-term Barrick Gold Corporation options. The stock's Schaeffer's Volatility Index (SVI) of 44% rests in the low 11th annual percentile, suggesting muted volatility expectations are being priced in. Likewise, ABX's Schaeffer's Volatility Scorecard (SVS) of 86 indicates the underlying has tended to make bigger-than-expected moves in the past year, relative to what the options market has priced in.

SLW has historically outperformed in the week following Christmas, as well. In the last decade, the stock has been positive during this period 70% of the time, with an average one-week gain of 2.5%. As with its sector peer, Silver Wheaton could use a repeat performance, as the shares have taken a serious haircut since hitting a three-year high of $31.35 in August. Right now, the stock is down 0.7% at $17.36.

As with Barrick Gold traders, SLW speculators have been purchasing calls over puts at a breakneck pace, seemingly ignoring the technical woes. The stock's 50-day ISE/CBOE/PHLX call/put volume ratio of 4.98 rests only 6 percentage points from an annual peak. However, ulterior motives could be in play here, too, considering the most recent reporting period saw an 18.4% jump in short interest.

For those looking to scoop up short-term options on the cheap, now's a good time to strike. Silver Wheaton Corp. sports an SVI of 43% -- below 84% of comparable readings from the past year. Moreover, the silver stock's SVS checks in at a high 85.

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Published on Dec 21, 2016 at 11:38 AM
Updated on Mar 19, 2021 at 7:15 AM
  • Intraday Option Activity
  • Stocks On the Move
  • Stock Market News
Netflix, Inc. (NASDAQ:NFLX) shares are up 1.3% at $126.72, as traders disregard news of a now-resolved hack of one of the streaming giant's Twitter Inc (NYSE:TWTR) accounts. Instead, the stock seems to be reacting to Stifel's price-target hike to $150 from $140, record-high territory for NFLX. The brokerage firm said expectations for a year-over-year decline in subscriber growth is an "overreaction to temporary issues the company faced in 2016," and that an expanded original content catalog increases the stock's value proposition -- with the latter outlook echoed by Loop Capital, which reiterated its $151 price target. Today's options traders appear to be taking the glass-half-full approach to NFLX stock, too, with calls trading at 1.6 times the average intraday pace.

Drilling down, the weekly 12/23 options series is hot, with buy-to-open activity detected at the 125-, 127-, and 128-strike calls -- NFLX's three most active options. If this is the case, the goal of the call buyers is for NFLX to settle the week north of the respective strike prices. Should the calls expire out of the money, though, the most the any group stands to lose is the initial premium paid.

Widening the scope reveals today's penchant for long calls just echoes the withstanding trend seen in the stock's options pits. At the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), speculative players have bought to open 63,856 calls on NFLX, compared to 33,497 puts. What's more, the resultant call/put volume ratio of 1.91 ranks in the 99th annual percentile, meaning long calls have been initiated relative to puts at a near-annual-high clip.

The optimism appears to be growing outside of the options arena, as well. Short interest declined nearly 13% in the two most recent reporting periods to 26.8 million shares -- the lowest amount since July 2015. Plus, the majority of the 33 analysts covering NFLX maintain a "buy" or better rating.

Looking at the charts, it's easy to see why sentiment is tilted toward the bullish side. For starters, NFLX is the only one out of its fellow "FANG" stocks to have outperformed the broader S&P 500 Index (SPX) over the past three months. What's more, even though shares of Netflix, Inc. (NASDAQ:NFLX) are staring down historical headwinds in next week's trading, the stock is up almost 29% this quarter, and is 2 percentage points away from taking out its Oct. 24 annual high of $129.29.

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Published on Dec 20, 2016 at 12:30 PM
Updated on Mar 19, 2021 at 7:15 AM
  • Earnings Preview

Tech firm Red Hat Inc (NYSE:RHT) is set to report earnings tomorrow evening. While analysts stand firmly in the stock's corner, options traders seem to be betting bearishly, with RHT put options more popular than usual.

For the day, RHT is trading 1.2% lower at $79.54. The software stock has added roughly 8.5% since its Dec. 2 lows, but is struggling against the round-number $80 mark, which is RHT's year-over-year breakeven level. Further, RHT has suffered several failed attempts to break out above the $81-$82 region, which is home to its June/July 2015 highs, and is currently in the vicinity of an important Fibonacci retracement level.

In the option pits, RHT's Schaeffer's put/call open interest ratio (SOIR) of 1.42 sits just 1 percentage point from an annual peak, indicating near-term option players have rarely been more put-skewed in the past 12 months. However, heavy call open interest is docked at the January 2017 80 strike, which is RHT's second-largest open interest position, with 2,829 contracts on record. This heavy open interest could reinforce round-number resistance in the short term.

Widening the scope, short interest is down 1.8% over the last reporting period, but there are still 5.5 million RHT shares sold short, or 4.7 times the stock's average daily trading volume. However, analysts remain firmly on the bullish side of the fence, with 14 of 16 rating RHT shares a "buy" or better, and without a single "sell" to be found. A weaker-than-expected earnings showing tomorrow could leave RHT vulnerable to downgrades.

Looking ahead to tomorrow's earnings report, Red Hat Inc (NYSE:RHT) shares have averaged a post-earnings, single-session move of 4.3% over the last eight quarters. Option traders are currently pricing in a more dramatic 8.7% single-session move in either direction. These heightened volatility expectations are seen in the stock's 30-day at-the-money implied volatility, too, which was last seen at 32.4% -- in the elevated 82nd percentile of its annual range.

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Published on Dec 20, 2016 at 1:49 PM
Updated on Mar 19, 2021 at 7:15 AM
  • Intraday Option Activity
  • Stocks On the Move
Twilio Inc (NYSE:TWLO) hit an intraday high of $31.49 earlier -- last seen up 4.9% at $30.58 -- after Drexel Hamilton initiated coverage on the tech stock with a "buy" rating and $45 price target. Specifically, an analyst at the brokerage firm said Twilio's low market share in "the rapidly growing cloud communications platform market" represents a huge growth opportunity, and that its recent pullback is a result of the market discounting the shares ahead of today's lockup expiration. Plus, as Schaeffer's Quantitative Analyst Chris Prybal pointed out, today's jump put shares of TWLO north of their 160-unit trendline on a 30-minute chart for the first time this month -- and it appears today's options traders think the stock has more room to run.

TWLO 30minute chart

At last check, nearly 16,500 TWLO options had traded -- almost three times what's typically seen at this point in the day -- with 12,150 calls on the tape, versus 4,300 puts. Most active is the weekly 12/23 30-strike call, where it seems safe to assume new positions are being purchased. In other words, call buyers expect TWLO stock to extend its surge north of the strike through this Friday's close, when the weekly series expires.

Today's call-skewed session just echoes the withstanding trend seen in TWLO's options pits in recent weeks. At the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), speculative players have bought to open 3,855 calls on the stock, compared to 1,768 puts.

Considering TWLO is a heavily shorted stock, it's certainly possible that some of this recent call buying is a result of short sellers hedging their bearish bets against any upside risk. In fact, short interest shot up almost 80% in the two most recent reporting periods to 10 million shares -- the loftiest amount since the stock first went public in late June.

Elsewhere on Wall Street, analysts have been hesitant to pull the trigger on TWLO, with 75% of brokerages maintaining a lukewarm "hold" rating. This skepticism isn't completely out of left field, though, considering the shares have pulled back significantly from their late-September record high of $70.96. However, what's more noteworthy is that TWLO stock has repeatedly found a foothold in the $29-$30 region -- double its initial public offering (IPO). Should the shares take a bigger bounce from this historically significant area, an unwinding of skepticism from short sellers and analysts could create tailwinds for Twilio Inc (NYSE:TWLO).

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