Earnings Season Highlights

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A collection of noteworthy post-earnings reactions
Published on Mar 21, 2024 at 2:36 PM
Updated on Mar 22, 2024 at 8:22 AM
  • Strategies and Concepts

LEAPS, or Long-term Equity AnticiPation Securities, are options with expiration dates set as far as three years into the future. They possess all the same characteristics as standard options, just with a much longer shelf life. Below, we will discuss the advantages and disadvantages of LEAPS vs. short-term options, compare buying LEAPS calls to traditional stock ownership, and look at ways to hedge with these long-term options.

LEAPS VS. SHORT-TERM OPTIONS

The primary difference between LEAPS and standard weekly or monthly options is time. Because there is more time for the predicted stock move to play out, LEAPS suffer less from time decay. And, since time decay doesn't begin to accelerate until expiration draws closer, the delta of LEAPS is higher than near-term options. This means LEAPS behave more closely to the underlying stock.

However, the added time value also makes LEAPS more expensive than shorter-term options with the same strike. Since option buyers' maximum risk is the initial premium paid, LEAPS buyers are risking more capital out of the gate. In addition, LEAPS are not readily available for every optionable stock. 

LEAPS VS. STOCK OWNERSHIP

As alluded to earlier, the higher delta of LEAPS options make them an attractive alternative to buying or shorting the shares outright, since they tend to move in near step with the stock price. Plus, buying LEAPS calls costs less than outright buying shares of a stock.

For example, if Stock XYZ is trading at $100, a bullish speculator could purchase 100 shares for $10,000, or a January 2025 100-strike call for $12, or $1,200 (since each option represents 100 shares). If XYZ rallies to $120 before January 2025, the stock buyer's shares will be worth $12,000 -- a $2,000 gain, or a 20% return on investment. Meanwhile, the intrinsic value of the January 2025 100-strike call will be $20; minus the $12 paid to buy the option (and not including brokerage fees), that's a profit of $8, or $800 -- a 67% return on investment.

However, by purchasing LEAPS calls instead of simply buying the stock, you forfeit shareholder benefits such as dividends and voting rights. In addition, the LEAPS buyer could suffer a much bigger percentage loss than the stock owner, should the underlying security take a turn for the worse. For instance, if XYZ fell to $90 by January 2020, the aforementioned call buyer would be staring at a 100% loss, while the shareholder would be looking at a 10% loss.

USING LEAPS TO HEDGE

Besides the traditional speculative options trading, LEAPS can be an effective tool for hedging. Shareholders can buy LEAPS puts to hedge against a long position they have. Index LEAPS can also be utilized as a large-scale protective put for your portfolio, or to hedge against sector-specific headwinds.

Published on Mar 21, 2024 at 4:26 PM
  • Market Recap
 
Published on Mar 21, 2024 at 2:08 PM
  • Quantitative Analysis

Ardelyx Inc (NASDAQ:ARDX) stock was last seen 0.6% lower at $7.75, extending a pullback from its Feb. 12, nearly seven-year high of $10.13. The shares are down 16.3% so far this month and underperforming a 3% March gain for the broader market SPDR S&P 500 ETF Trust (SPY). However, this deficit may present the perfect buying opportunity if history is any indicator.

ARDX just pulled back to a historically bullish trendline on the charts. According to data from Schaeffer's Senior Quantitative Analyst Rocky White, Ardelyx stock is within one standard deviation of its 80-day moving average, a trendline that helped the stock move higher one month later in two out of three instances over the past three years. In both instances, the equity averaged a 13.5% 21-day return, meaning a move of similar magnitude would put it just below the $9 level.

ARDX Chart March 212024

An unwinding of options traders' pessimism could also bode well for the security. This is per ARDX's Schaeffer's put/call open interest ratio that stands higher than 97% of annual readings, implying a put-biased amongst short-term premium players.

It's also worth noting that short interest is up 19.4% over the last month, and the 33.61 million shares sold short account for 14.7% of Ardelyx's total available float. Those looking to speculate should consider options, as the equity's Schaeffer's Volatility Index (SVI) of 75% stands higher than just 9% of readings from the past 12 months -- a sign that options traders are pricing in lower-than-usual volatility expectations. 

Published on Mar 21, 2024 at 2:02 PM
  • Earnings Preview

 

Published on Mar 21, 2024 at 11:56 AM
  • Midday Market Check

         

Published on Mar 21, 2024 at 11:07 AM
  • Buzz Stocks

Semiconductor stock Micron Technology Inc (NASDAQ:MU) is soaring to record highs today, after the company's better-than-expected fiscal second-quarter results and upbeat fiscal third-quarter forecast, helped by the artificial intelligence (AI) boom. At last glance, MU was up 16.8% at $112.39, earlier hitting a peak of $113.50. 

Argus raised its rating to "buy" from "hold" after the event, joining one of several firms to upgrade the stock over the last month. A host of analysts lifted their price targets as well, with the highest from Susquehanna to $143 to $112. Of the 36 analysts in coverage, 32 carry a "buy" or better rating on MU, while the 12-month consensus price target of $125.06 sits at a 13.1% premium to current levels. 

Unsurprisingly, options traders are blasting Micron Technology stock today. So far, 375,000 calls and 134,000 puts have been traded, which is nine times the average intraday options volume. The weekly 3/22 110-strike call is the most popular, followed by the 115-strike call in that series, with new positions opening at both. 

Published on Mar 21, 2024 at 10:00 AM
  • The Week Ahead
          
Published on Mar 21, 2024 at 9:59 AM
  • Buzz Stocks

China-based Li Auto Inc (NASDAQ:LI) announced earlier it expects electric vehicle (EV) deliveries to come around 78,000 vehicles for the first quarter, as opposed to the 103,000 it previously anticipated, due to lower-than-expected order intake. The security is down 7.3% at $31.63 this morning.

Li Auto stock has suffered several bear gaps in the past month that have place it below the 20-day moving average, a trendline that had been acting as support earlier this month. Overhead pressure at the $47 level turned away the equity's February rally, after rejecting an August surge that came just shy of record highs. So far this month, LI has shed 30.2%.

Despite its recent price action, all nine analysts in coverage rate the stock a "buy" or better, while the 12-month consensus target price of $57.09 is still a whopping 77.6% premium to current levels. This indicates there is ample room for downgrades and/or price-target cuts, which could pressure LI.

Short-term options traders lean bearish. This is per the security's Schaeffer's put/call open interest ratio (SOIR) of 1.10 that sits higher than 74% of readings from the past 12 months.

Published on Mar 21, 2024 at 9:17 AM
  • Buzz Stocks
  • Analyst Update

Shares of Broadcom Inc (NASDAQ:AVGO) are 2.9% higher at $1,313 before the bell, after TD Cowen upgraded the semiconductor maker to "outperform" from "market perform" and lifted its price target to $1,500 from $1,400. In its bull note, the analyst said the artificial intelligence (AI) business has the potential to provide even more tailwinds.

There's been a lot of hype surrounding chipmakers and their respective equities, especially AI-darling Nvidia (NVDA), which just announced a new generation of AI chips. AVGO hasn't been left out of the conversation, boasting a 14.3% year-to-date gain. Hoping for its fourth-straight daily win, Broadcom stock is looking to reclaim its March 4 all-time high of $1,438.17. 

Analysts and options traders are both overwhelmingly bullish. Of the 26 covering brokerages, 22 rate AVGO a "strong buy." Meanwhile, over at the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), Broadcom stock's 50-day call/put volume ratio of 2.15 stands higher than all other readings in its annual range.

Options are affordably priced too, per the stock's Schaeffer's Volatility Index (SVI) of 31% that stands higher than 15% of annual readings. This implies options traders are pricing in low volatility expectations. 

Published on Mar 21, 2024 at 9:14 AM
  • Opening View

Stock futures are sharply higher this morning, following record closes for all three major indexes after the Fed's decision to keep interest rates unchanged. Equities roared to life in the final hours of yesterday's session, after the central bank hinted at three rate cuts to come this year, while Fed Chair Jerome Powell also noted it would not be deterred by strong jobs data. Futures on the Dow Jones Industrial Average (DJIA) and Nasdaq-100 Index (NDX) are up triple digits, while S&P 500 Index (SPX) futures sit in the black as well. 

Elsewhere this morning, jobless claims came in at 210,000, while the Philadelphia Fed factory gauge unexpectedly remained in expansion territory for the second month in a row, coming in at 3.2 compared to analyst estimates of negative 5. 

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

  • 2 stocks under $20 to keep on your radar. 
  • How options traders scored a profit with Gap stock. 
  • Plus, MU surges after earnings; Apple's potential lawsuit; and RVLV upgraded.

Futures March 21

5 Things You Need to Know Today

  1. The Cboe Options Exchange (CBOE) saw more than 1.2 million call contracts and 918,909 put contracts exchanged Wednesday. The single-session equity put/call ratio rose to 0.72, while the 21-day moving average remained at 0.71.
  2. Semiconductor stock Micron Technology Inc (NASDAQ:MU) is up 17.2% premarket, after the company's better-than-expected fiscal second-quarter results. Argus raised its rating to "buy" after the event, while several other firms lifted their price targets on the stock. Should these gains hold, Micron stock will open at record highs. 
  3. Apple Inc (NASDAQ:AAPL) stock is off 0.8% before the bell, after Bloomberg reported that the Justice Department could soon file an antitrust lawsuit against the tech giant. Since the start of the year, Apple stock is down 7.2%. 
  4. The shares of fashion retailer Revolve Group Inc (NYSE:RVLV) are up 5.4% in electronic trading, after an upgrade from TD Cowen to "outperform" from "market perform," with a price-target hike to $25 from $23. Mostly on account of a February post-earnings bull gap, RVLV is enjoying a 24.3% year-to-date gain. 
  5. Plenty of economic data this week to go with the Fed's interest rate decision

buzzmar21

Nikkei Nabs Record High

Indexes in Asia surged higher today, for the most part. Japan’s Nikkei soared to a fresh record high of 40,823 in intraday trading, and closed up just over 2% after the Bank of Japan’s (BoJ) Governor Kazuo Ueda said they will continue to support the economy via "accommodative monetary conditions." South Korea’s Kospi enjoyed a 2.4% jump and Hong Kong’s Hang Seng climbed 1.9%. Meanwhile, China’s Shanghai Composite’s slipped marginally, after Central Bank Deputy Governor Xuan Changneng said there is "still room for cutting" in the country’s monetary policy, despite yesterday’s unchanged one- and five-year loan rates.

Across the pond stocks are mostly higher as well, with London’s FTSE 100 up 1.5%, Germany’s DAX 0.5% higher , and France’s CAC 40 flat, at last glance. These gains come on the heels of the Bank of England’s (BoE) decision to keep rates steady, as expected. Elsewhere, in a surprise move, the Swiss National Bank (SNB) trimmed its policy rate to 1.5%.

Published on Mar 20, 2024 at 4:27 PM
  • Market Recap
 
Published on Mar 20, 2024 at 2:55 PM
  • Buzz Stocks

Depending on who you ask, a recession is either right around the corner, or the stock market is ready to rattle off a seismic bull run. As always, the answer is probably something in the middle of those two extremes. But due to the uncertainty surrounding the Federal Reserve’s rate cuts, investors are stuck in a holding pattern until more data defines the country's fiscal path.

Since bargains become popular when times are uncertain, we’d like to introduce a new weekly segment: Cheap Seats. Every week, we will profile two stocks under $20 with a market capitalization of at least $2 billion.

These are not outright "buy" recommendations, but interesting names – with cheap overhead – that are worth adding to your watch list. This week, we're taking a look at biotech stock Immunitybio Inc (NASDAQ:IBRX) and Lemonade Inc (MYSE:LMND)

IBRX is surging today, following the company's better-than-expected earnings report -- up 10.5% to trade at $6.07 at last glance, though still sitting at a reasonably priced $6. The stock is a far cry from its record high of $45.42 on Feb. 22, 2021, and has been in and out of penny stock territory for the past two years.

In the short term, there is plenty of short interest that could lend itself to a short squeeze, as the 51.55 million shares sold short represent 39.5% of IBRX's available float. There is plenty of space for bull notes as well, as there are only two analysts in coverage.

The shares of Lemonade are also on the rise today, up 4.8% to trade at $16.49 at last glance. Notably, the insurance company's business model strongly centers around the use of artificial intelligence (AI), a boon for many stocks this year. Since last March, the equity is up 21.9%. Lemonade stock also has plenty of pessimism that could unwind, as short interest represents 31.2% of the stock's available float. 

When weighing in on LMND, options look like a good way to go. The stock is seeing well-priced premium at the moment, per its Schaeffer's Volatility Index (SVI) of 56% ranks in the low 3rd percentile of its annual range. 

 

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