Earnings Season Highlights

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A collection of noteworthy post-earnings reactions
Published on Dec 9, 2016 at 2:30 PM
Updated on Mar 19, 2021 at 7:15 AM
  • Stocks On the Move
  • Stock Market News
  • Intraday Option Activity
Twenty-First Century Fox Inc's (NASDAQ:FOXA) options pits are boiling over, after the media firm announced its $14.1 billion offer to buy the outstanding shares of British TV titan Sky Plc -- of which it already owns a 39.1% stake. At last check, 18,000 calls are on the tape -- 16 times the usual intraday rate, and good for the 99th annual percentile.

Digging deeper, the January 2017 30 strike is the most popular option by a mile, accounting for roughly two-thirds of FOXA's call volume. Several sizable blocks were seemingly bought to open, echoed by data at the International Securities Exchange (ISE). The goal for buyers is to see the stock muscle atop the round $30 level by the close on Friday, Jan. 20, when back-month options expire.

Today's trend toward calls over puts represents quite the change of pace. Over the last 10 days at the ISE, Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), FOXA has amassed a 10-day put/call volume ratio of 8.25 -- with bearish bets outstripping bullish by a more than 8-to-1 margin. What's more, this ratio ranks in the high 92nd percentile of its annual range. Underscoring the prevailing put-skew is FOXA's Schaeffer's put/call open interest ratio (SOIR) of 0.99, which is higher than 83% of comparable readings recorded in the prior 12 months.

Bearish bettors are likely celebrating what's happened to the stock today. After jumping out to an early lead on the Sky bid, FOXA has done an about-face, and now sits 2.5% lower at $27.91. In fact, the shares are clinging to a narrow 2.8% year-to-date lead.

As far as the aforementioned call buyers go, today's reversal likely represents a setback. It's also worth noting that Twenty-First Century Fox Inc (NASDAQ:FOXA) hasn't closed a session above $30 since early May. Fortunately, the most "vanilla" call buyers stand to lose if the January 30 strike expires out of the money is the initial premium paid. And, based on the stock's Schaeffer's Volatility Index (SVI) of 22% -- which ranks in the low 9th annual percentile -- premium on short-term FOXA options appears to be relatively modest.

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Published on Dec 9, 2016 at 2:36 PM
Updated on Mar 19, 2021 at 7:15 AM
  • Expectational Analysis

Electronics retailer Best Buy Co Inc (NYSE:BBY) has been on a tear in 2016, nearly doubling in value from its mid-January annual low. In fact, the shares snagged an eight-year high of $49.40 on Thursday, but were last seen off 0.9% at $48.85. Despite the equity's outperformance this year, traders and analysts have been exceptionally bearish toward BBY, leaving plenty of potential purchasing power on the sidelines.

Starting with the brokerage bunch, 14 firms currently track BBY stock, and 10 of them maintain a rating of "hold" or "strong sell." What's more, the average 12-month price target now sits underfoot, at $45.48. Simply stated, the security may be overdue for a round of upgrades and/or price-target hikes, which could be a boon for the shares.

Short sellers have also had BBY in their sights. These bearish bets climbed by nearly 11% during the most recent two-week reporting period, and now account for 13.6% of the stock's available float. It would take more than a week for shorts to cover all these positions, based on the stock's average daily volume -- plenty of buying power to give BBY a boost.

At first glance, it appears options traders may be diverging from the pack, taking a more upbeat approach. After all, BBY's 50-day call/put volume ratio on the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) sits at a top-heavy 2.62 -- just 2 percentage points from an annual call-skewed high. But with short interest at elevated levels, it's likely some of this call buying has come at the hands of short sellers looking for a hedge against further upside.

Meanwhile, near-term open interest is approaching a put-skewed extreme. BBY holds a Schaeffer's put/call open interest ratio (SOIR) of 2.28 -- indicating put open interest more than doubles call open interest among options in the front three months' series. Moreover, this ratio rests higher than 95% of all comparable readings from the last 52 weeks.

With all of this pessimism toward BBY, there's plenty of room for a capitulation of bearish positions to create tailwinds for the shares -- and help the stock break from its history of dismal Decembers. Plus, peak put open interest in Best Buy Co Inc's (NYSE:BBY) December series resides at the underfoot 45 strike. As the hedges related to these bets unwind over the next week, the $45 level could be reinforced as support.

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Published on Dec 9, 2016 at 2:52 PM
Updated on Mar 19, 2021 at 7:15 AM
  • Stock Market News
  • By the Numbers
Next Friday is December options expiration, in which standard monthly options cease trading at the close. Not only that, but it's quadruple witching expiration, when stock and index options and futures simultaneously expire. This event occurs just four times a year -- in March, June, September, and December -- and could have stock markets seeing increased volatility throughout the week. Taking into account stocks that have options, trade at least one million shares per day, and are currently worth at least $10 per share, Schaeffer's Senior Quantitative Analyst Rocky White ran the numbers to see which stocks historically outperform during quadruple witching expiration week. Making the list were bulk retailer Costco Wholesale Corporation (NASDAQ:COST), tobacco firm Philip Morris International Inc. (NYSE:PM), and telecommunications name Verizon Communications Inc. (NYSE:VZ).

best stocks quadruple witching weeks

Since 2010, COST has been positive at the end of quadruple witching expiration week 81% of the time, averaging a gain of 0.9%. Heading into next week's trading, COST stock was last seen up 0.8% at $158.83, thanks to a price-target hike to $143 from $135 of Jefferies. Longer term, the security has rallied 11.8% off its early November low of $142.11 -- regaining a foothold atop previous congestion in the $150 area -- including yesterday's post-earnings pop that had COST trading at levels not seen since late August.

Nevertheless, short-term options traders are more put-skewed than usual toward COST. In fact, Costco Wholesale Corporation's Schaeffer's put/call open interest ratio (SOIR) of 1.26 is docked in the 85th annual percentile. Should COST extend its run higher, an unwinding of the hedges related to these bets could help buoy the shares in the near term.

PM has been positive 81% of the time during quadruple witching expiration week -- looking back six years -- returning an average of 1.2%. The stock could certainly use a boost, considering it's surrendered 13.3% since topping out at a record high of $104.20 in mid-July, last seen at $90.31. However, PM's bleeding appears to have stopped in the $87-$88 region, home to the security's year-to-date breakeven mark.

Analysts, nonetheless, remain optimistic. Of the 12 brokerages covering the shares, 10 maintain a "buy" or better rating toward PM, with not a single "sell" to be found. Plus, Wells Fargo recently waxed optimistic on the "timeliness" of Philip Morris International Inc.'s application submission to the Food and Drug Administration (FDA), seeking approval for its iQOS alternative cigarette, saying the device gives a "unique competitive advantage" to both PM and Altria Group Inc (NYSE:MO).

Over the past six years, VZ has averaged a gain of 1.2% during quadruple witching expiration week, and has been positive 85% of the time. Today, the shares are up 0.5% at $51.39 -- as M&A buzz swirls -- widening their advance off their mid-November lows near $46 to 11.7%. However, this rebound appears to be running out of steam around $51.50 -- a level that has served as both support and resistance for VZ since mid-February.

Options traders have been buying to open calls over puts at a faster-than-usual clip in recent weeks, per VZ's 50-day International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) call/put volume ratio of 1.62 -- in the 67th annual percentile. Drilling down, Verizon Communications Inc.'s December 50.50 call has seen the biggest rise in open interest among front-month contracts during the last 10 sessions, with 3,488 new positions added.

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Published on Dec 9, 2016 at 3:23 PM
Updated on Mar 19, 2021 at 7:15 AM
  • Stocks On the Move

U.S. stocks are higher, as the major indexes extend their quest for record highs. Among specific equities in focus today are freight firm Swift Transportation Co (NYSE:SWFT), apparel stock Duluth Holdings Inc (NASDAQ:DLTH), and beverage blue chip The Coca-Cola Co (NYSE:KO). Here's a quick look at what's moving SWFT, DLTH, and KO.

  • SWFT is down 7.2% at $24.45, after the company said it expects full-year earnings to come in at the lower end of its previous guidance. The freight stock is currently on today's short-sale restricted (SSR) list, and earlier received a price-target cut to $22 from $25 by Stifel. Earlier this week, SWFT notched a fresh annual high as transport stocks rallied, and option traders have been betting on more upside for the stock. Swift Transportation Co's 10-day call/put volume ratio at the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) sits in the upper quartile of its annual range, with more than nine calls bought to open for every put over the last two weeks.

  • DLTH is trading 22.4% lower at $28.74,  after the company reported weaker-than-expected third-quarter revenue. Analysts were quick to hop on the stock; Stifel cut DLTH to "hold" from "buy," lowered its price target to $33 from $35, and predicted challenges continuing into the fourth quarter. William Blair downgraded the shares to "market perform" from "outperform," while Raymond James cut its target price to $30 from $35. Though the stock is one of the worst performers on the Nasdaq today, DLTH is still up 98% in 2016, and is attempting to find support atop its 20-week moving average. While DLTH is on the SSR list, plenty of short sellers are cheering today's bear gap, with Duluth Holdings Inc's short interest up 53.7% over the last two reporting periods. Shorted shares account for more than 38.9% of DLTH's float, which would take over three weeks of trading to cover, at DLTH's average daily volume.
  • KO is up 2.5% at $41.99, after CEO Muhtar Kent announced he would step down next May, to be replaced by James Quincey, currently COO. Kent will remain on as chairman of the board, however. KO has had a tumultuous 2016, with the shares falling 11% since their April highs, and notching an annual low of $39.88 earlier this month. Today, though, the stock is on pace to end the week above its 10-week moving average for the first time since July. Option buyers have been betting on more downside in recent weeks, with The Coca-Cola Co's 50-day put/call volume ratio at the ISE/CBOE/PHLX of 0.88 sitting in the 81st percentile of its annual range, indicating a stronger-than-usual appetite for bearish bets of late.
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Published on Dec 9, 2016 at 3:44 PM
Updated on Mar 19, 2021 at 7:15 AM
  • Trader Content
Our traders are stalking a lot of different stocks throughout the week, but not every potential trade idea develops into a formal recommendation to our subscribers. Whether it's the break of a key technical level, an unexpected news announcement, or an unfavorable options pricing environment, this regular feature will shed some light onto the factors we view as "dealbreakers" to otherwise intriguing trade setups. Today, Schaeffer's Senior Equity Analyst Joe Bell, CMT, chimed in on one stock he was toying with -- but ultimately rejected -- for a bearish recommendation in late November: blue-chip media monster Walt Disney Co (NYSE:DIS).

Specifically, Bell initially liked the stock's rejection at the round-number $100 level. Plus, at the time there was heavy call open interest in the December series, he noted, which can often serve as options-related resistance. In the past two weeks, more than 16,000 100-strike calls have been liquidated, when looking at both weekly and standard monthly options expiring in December.

DIS OI Dec 9



However, Bell acknowledged that Walt Disney Co (NYSE:DIS) stock has been showing great momentum recently, which is why he ultimately rejected a bearish rec. "The stock's 20-day and 200-day moving averages made a bullish cross, and DIS has been holding steady above the latter trendline for its longest stretch since last November," he said. DIS could be on its way to taking out its May highs in the $107 area, with the shares last seen 0.7% higher at $104.13. Meanwhile, Barron's named the blue chip one of its top picks for 2017.


DIS chart Dec 9


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Published on Dec 8, 2016 at 12:08 PM
Updated on Mar 19, 2021 at 7:15 AM
  • Earnings Preview

As Vail Resorts, Inc. (NYSE:MTN) prepares to present earnings tomorrow morning, option traders will be watching closely. While the stock has been on an upward tear for years, MTN's put options have been heating up, with speculators gambling on -- or hedging against -- a pullback.

The day ahead of earnings, MTN is down 1.2% at $160.77. The stock has tacked on 25% since the beginning of 2016, and managed to notch a record high of $166.03 on Black Friday. Longer term, the shares have been ushered higher by their 20- and 32-week moving averages since mid-2014, more than doubling amid a series of higher highs.

161208MTN 3

Just yesterday, MTN's put volume hit an annual peak, and the stock's total open interest is in the 97th percentile of its annual range, with 7,341 contracts -- 5,158 of which are puts. This penchant for puts isn't out of the ordinary for MTN option players-- MTN's 50-day put/call volume ratio at the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) shows nearly four puts bought to open for every call over the last 10 weeks, a reading that sits higher than 87% of all other readings from the last 12 months.

As a result, MTN's Schaeffer's put/call open interest ratio (SOIR) of 2.45 sits just 9 percentage points from an annual peak, indicating near-term option players have been especially put-heavy. Drilling down, the January 160 put is the top open interest position, with more-than-triple the number of contracts of the next top open interest option, at 2,103 -- 2,068 of which were added in the last two weeks, with buy-to-open activity detected. Today, MTN options are crossing at six times their average intraday rate, though absolute volume is still light, with just 594 puts and 283 calls crossing so far.

As for what tomorrow holds, MTN has averaged a one-day post-earnings swing of 3.6% in either direction over the last eight quarters. This time around, option players are pricing in a slightly larger move of 4.6%. For the last two years, Vail Resorts, Inc. (NYSE:MTN) shares have finished in the red four times after reporting earnings, and last quarter specifically, MTN fell 3% in the session after earnings. 

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Published on Dec 8, 2016 at 2:07 PM
Updated on Mar 19, 2021 at 7:15 AM
  • The Week Ahead

All eyes will be on the Federal Open Market Committee (FOMC), which will begin its December meeting on Tuesday, and is expected to announce a rate hike -- the first in a year -- on Wednesday. The meeting will be followed by a press conference with Fed Chair Janet Yellen, and the week will be punctuated by a speech from Richmond Fed President Jeffrey Lacker.

Below is a brief list of some key market events scheduled for the upcoming week. All earnings dates listed below are tentative and subject to change. Please check with each company's respective website for official reporting dates.

The week kicks off on Monday, Dec. 12, with the release of the Treasury budget. On the earnings front, Arrowhead Pharmaceuticals (ARWR), Peregrine Pharmaceuticals (PPHM), and VeriFone (PAY) are set to report.

Tuesday, Dec. 13 brings the start of the much-anticipated FOMC meeting. The latest import and export data will hit the Street.

November retail sales and the producer price index (PPI) will be announced on Wednesday, Dec. 14, along with industrial production data, business inventories, and the regularly scheduled crude inventories report. The highlight of the day will be the conclusion of the FOMC December meeting and Yellen's subsequent press conference. Stepping up to the earnings plate are Joy Global (JOY) and Pier 1 Imports (PIR).

On Thursday, Dec. 15, the consumer price index (CPI) is due out, along with weekly jobless claims, the Philadelphia Fed business outlook survey, and the Fed balance sheet. Adobe Systems (ADBE), Jabil Circuit (JBL), Oracle (ORCL), and Sanderson Farms (SAFM) are all due to present earnings.

The week wraps up on Friday, Dec. 16 -- a quadruple-witching Friday -- with a speech from Richmond Fed President Jeffrey Lacker. As for economic data, November housing starts and the Baker-Hughes rig count will be released. There are no major earnings reports slated for release.

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Published on Dec 8, 2016 at 2:17 PM
Updated on Mar 19, 2021 at 7:15 AM
  • Intraday Option Activity
  • Stock Market News
Just one day after reports surfaced that Apple Inc. (NASDAQ:AAPL) is in movie-streaming discussions with several major studios, rumors are circulating today that the iPhone parent could be interested in Netflix, Inc. (NASDAQ:NFLX) as a possible takeover target. Netflix is hardly a stranger to buyout buzz, and although the stock was up 0.8% at its intraday peak, shares of NFLX were last seen down 2.3% at $122.46. Nevertheless, calls are trading at an accelerated clip in NFLX stock's options pits, with the weekly 12/9 series seeing most of the action.

By the numbers, 62,220 NFLX calls have traded so far -- 1.8 times the average intraday pace -- compared to 31,250 puts. The stock's weekly 12/9 124-, 125-, and 126-strike calls are most active, with a collective 17,886 contracts having changed hands. There looks to be a mix of buy- and sell-to-open activity occurring at each strike. Those purchasing new positions are betting on NFLX to surge above the strike price by tomorrow's close -- when the weekly options expire -- while those writing to open the calls expect the strikes to serve as a short-term ceiling.

Today's activity is nothing new for NFLX, considering the stock has been heavily targeted by weekly options traders in recent weeks. According to data from Schaeffer's Senior Quantitative Analyst Rocky White, 200,809 weekly calls have traded on NFLX in the last 10 sessions, compared to 152,994 weekly puts. Including both weekly and monthly options, NFLX has seen 329,657 calls cross the tape in the last two weeks, versus 235,452 puts.

Drilling down, the stock's weekly 12/9 125-strike call has seen the biggest rise in open interest over the past two weeks, with 2,928 contracts added. Close behind is the December 129 call, with 2,840 new positions initiated in the last 10 sessions. More broadly, the December 130 call is NFLX's top open interest position, with 20,830 contracts currently outstanding. According to data from the major options exchanges, the bulk of the action has been of the buy-to-open kind.

Technically, NFLX has recently struggled against the $129 mark, which currently coincides with its year-over-year breakeven level. Specifically, the stock spent the last full trading week of October butting up against this level, after notching an annual high of $129.29 on Oct. 24. And while Netflix, Inc. (NASDAQ:NFLX) pulled back during the post-election tech sell-off, it filled this bearish gap on Tuesday -- amid some bullish brokerage attention and reports of a possible set-top box partnership with Charter Communications, Inc. (NASDAQ:CHTR) -- to trade back above early November support near $122.

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Published on Dec 8, 2016 at 2:53 PM
Updated on Mar 19, 2021 at 7:15 AM
  • Most Active Weekly Options
The 20 stocks listed in the table below have attracted the highest weekly options volume during the past 10 trading days. Stocks highlighted are new to the list since the last time the study was run, and data is courtesy of Schaeffer's Senior Quantitative Analyst Rocky White. Two names of notable interest are e-tailer Amazon.com, Inc. (NASDAQ:AMZN) and commodity stock United States Steel Corporation (NYSE:X). Here's a quick look at how options traders are lining up on AMZN and X.

most active weekly options dec 8

AMZN is off 0.6% at $765.72, after Citi replaced Amazon with Alphabet Inc (NASDAQ:GOOGL) as its top U.S. internet stock pick. This only extends the stock's technical troubles since Donald Trump's surprise victory last month, with the shares down almost 3% post-election -- even as the broader stock market has ripped to record highs.

However, according to Benchmark, the drop is the result of "irrational post-Trump retribution fear." Specifically, the brokerage firm reiterated its "buy" rating on AMZN, as well as a $950 price target -- representing record-high territory -- and is bullish about the company's planned entry into the grocery market with Amazon Go.

Per the chart above, weekly options on Amazon.com, Inc. have been flying off the shelves. It's more of the same today, as the weekly 12/9 series accounts for each of the top 10 strikes -- with opening activity detected at the out-of-the-money 770, 775, and 780 calls.

Meanwhile, X has gone gangbusters since the election. At $37.94, the shares have rocketed over 80% higher since their Nov. 8 close -- blistering past this key year-to-date level -- and are fresh off a two-year high of $39.14. Bolstering U.S. Steel stock today was CEO Mario Longhi's remark, "when you see in the near future improvement to the tax laws, improvements to regulation, those two things by themselves may be a significant driver to what we're going to do." Longhi also predicted the steel industry could bring up to 10,000 jobs back to the U.S.

Turning to the options pits, X's weekly 12/9 series is popular, accounting for half of the 10 most active strikes. It appears short-term bulls may be buying to open the near-the-money 38-strike call. On the flip side, traders anticipating a near-term pullback for United States Steel Corporation could be purchasing fresh positions at the weekly 12/9 37-strike put.

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Published on Dec 8, 2016 at 3:14 PM
Updated on Mar 19, 2021 at 7:15 AM
  • Stocks On the Move

U.S. stocks are higher, following the European Central Bank's (ECB) stimulus announcement. Among specific equities in focus today are tech stocks Juniper Networks, Inc. (NYSE:JNPR) and Ciena Corporation (NYSE:CIEN), as well as drugmaker Puma Biotechnology Inc (NYSE:PBYI). Here's a quick roundup of what's moving JNPR, CIEN, and PBYI.

  • JNPR is up 4.2% at $28.92, after some upbeat analyst attention. Instinet and Nomura both issued upgrades to "buy" from "neutral," and the latter hiked its price target to $33 from $24. JNPR has been on a steady track upwards since its post-earnings bull gap in October, and is set for its highest close of 2016 today. In the options pits, a fair number of bullish bettors are likely cheering today's price action, with Juniper Networks, Inc.'s 10-day call/put volume ratio at the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) showing nearly 13 calls bought to open for every put over the last two weeks, a reading that sits in the 92nd percentile of its annual range. However, JNPR's option volume is relatively light on an absolute basis, with just 1,751 calls and 135 puts bought to open during that period.

  • CIEN is up 13.8%, and is among the best performers on the New York Stock Exchange, as a record-high revenue and order backlog overshadow lackluster earnings. The stock notched a new annual high of $24.84 earlier today, and now sits above the $22-$23 range that has contained the shares since the beginning of the year. Bearish bettors may be sweating, with Ciena Corporation's 10-day put/call volume ratio at the ISE/CBOE/PHLX of 1.09 sitting higher than 93% of all other readings from the past 12 months. 
  • PBYI is down 10.8% at $35.50 -- among the worst performers on the NYSE -- after delivering downbeat drug data last night, saying that its breast cancer drug, neratinib, may have a greater toxicity profile and more severe side effects than originally thought, which could jeopardize its eventual approval for patient use. PBYI has had a rough few months, with the shares tumbling more than 50% since their September highs, after an insider trading scandal. Today's price action may come as a surprise to near-term option players, with Puma Biotechnology Inc sporting a Schaeffer's put/call open interest ratio (SOIR) of 0.65, which sits lower than 91% of all other readings from the past year, indicating short-term speculators have been more call-skewed than usual.
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Published on Dec 8, 2016 at 3:16 PM
Updated on Mar 19, 2021 at 7:15 AM
  • Intraday Option Activity
  • Stocks On the Move
  • Earnings Preview
Ferrellgas Partners, L.P. (NYSE:FGP) is slated to take its turn in the earnings confessional tomorrow morning, and ahead of the event, the energy stock is soaring on an upgrade to "sector perform" from "underperform" at RBC. And while the brokerage firm said Ferrellgas Partners had "focused on reducing its debt leverage to more optimum levels," it slashed its price target on the shares to $6 from $11. Nevertheless, FGP stock is trading up 16.8% at $6.93, and options traders are calling for even more post-earnings upside.

At last check, FGP calls were trading at three times the average intraday pace, with 3,404 contracts on the tape. Puts are also crossing at a faster-than-usual clip, though just 531 put options have traded. The December 7.50 call has seen the most action, and it looks like most of the 2,125 contracts that have changed hands may have been bought to open. If this is the case, call buyers expect FGP stock to break out above $7.50 by next Friday's close, when the front-month options expire.

Today's call-skewed trading is hardly new in FGP'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 5.05 calls for each put over the past 10 sessions. Plus, the equity's Schaeffer's put/call open interest ratio (SOIR) of 0.36 ranks lower than 93% of all comparable readings taken in the past year. In other words, short-term speculators are more call-heavy than usual toward FGP.

Outside of the options pits, sentiment is more mixed. Short interest, for example, has dropped 55% since hitting a four-year high in early October, and currently accounts for just 1.8% of the stock's available float. Analysts, meanwhile, are fairly skeptical. Although a number of brokerages have joined RBC in upwardly revising their ratings recently, all seven analysts covering the shares maintain a "hold" opinion or worse.

Historically speaking, the shares of Ferrellgas Partners, L.P. (NYSE:FGP) tend to underperform in the session subsequent to reporting -- closing lower in seven of the past eight quarters. This would only echo the energy stock's longer-term technical trajectory, with FGP down more than 58% year-to-date, and fresh off a Dec. 1 record low of $5.04.

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Published on Dec 8, 2016 at 3:20 PM
Updated on Mar 19, 2021 at 7:15 AM
  • Stocks On the Move
  • Intraday Option Activity

Express Scripts Holding Company (NASDAQ:ESRX) appears to be the latest victim of notorious short seller Citron Research. The firm's scathing comments have sent numerous names plummeting in the past, and it's more of the same today. At last check, ESRX has dropped 7.6% to $70.07 amid heavy stock and options volume, after Citron called the company the "Philidor of the pharma industry," and added that Express Scripts is "the culprit behind pharmaceutical price gouging."

What's more, the short seller made reference to President-elect Donald Trump's recent comments regarding a crackdown on drug prices, suggesting that when Trump takes action against ESRX, "heads will roll." Citron likewise set a low $45 price target -- territory not seen in roughly five years.

With ESRX on the short-sale restricted list, puts are trading at 12 times the typical intraday rate, and have already hit an annual high for daily volume. Today's short-term traders may be paying extra-high premiums, too, as the stock's 30-day at-the-money implied volatility has more than doubled from Wednesday's close to notch a new 12-month peak, at 57.1%.

Leading today's action is the December 74 put, where a 5,391-contract block was traded earlier today for $1.55 apiece. If these puts were bought to open -- as Trade-Alert suggests -- the trader paid an initial premium of over $835,000 (premium paid * number of contracts * 100 shares per contract). The goal would be for ESRX to extend its run south of $74 though front-month expiration at the close on Friday, Dec. 16. However, it's worth noting the contract is currently being bid at $4.70, suggesting the potential buyer is already staring at paper profits of more than 200%.

From a broader standpoint, put buying is nothing new in ESRX's options pits. In fact, the stock's 50-day put/call volume ratio of 1.63 across the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) ranks higher than 79% of the past year's readings. Likewise, its Schaeffer's put/call open interest ratio (SOIR) of 0.96 -- in the 69th annual percentile -- indicates near-term speculators are more put-skewed than usual.

There's plenty of pessimism to be found outside of the options pits, as well. Short interest on the stock, while relatively low at 4% of ESRX's available float, saw a 5% uptick in the most recent reporting period. Plus, 11 of 19 tracking analysts currently call the equity a "hold" or a "strong sell."

While it's hard to say whether Citron's claims have any merit, Express Scripts Holding Company (NASDAQ:ESRX) certainly hasn't been much to write home about, from a technical point of view. The shares have widened their year-to-date loss to nearly 20%. The stock now finds itself back in the $69-$71 region, where it spent the bulk of September and October trading sideways.

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