Earnings Season Highlights

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A collection of noteworthy post-earnings reactions
Published on Jun 1, 2015 at 2:24 PM
Updated on Mar 19, 2021 at 7:15 AM
  • Intraday Option Activity

Call buyers are jumping on GoPro Inc (NASDAQ:GPRO), after the company announced the Hero+LCD -- an entry-level touchscreen camera -- will be available for $299 on June 6 (in the U.S.). With GPRO in rally mode, calls are now crossing at almost twice the expected intraday rate, making up nine of the 10 most popular contracts.

Two contracts seeing the most action are the weekly 6/5 58- and 60-strike calls. All signs point to buy-to-open activity, as traders bet on the shares to eclipse the strikes by the close this Friday, when the contracts expire.

Call buying has been the go-to strategy in GPRO's option pits for some time now. The equity's 50-day International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) call/put volume ratio sits at 3.35. This tells us over three calls have been bought to open for every put during the past 10 weeks.

It's been a solid few months on the charts for GoPro Inc (NASDAQ:GPRO), to say the least. Since touching a 2015 low of $37.13 on March 10, the shares have picked up over 59%, while outperforming the S&P 500 Index (SPX) by almost 35 percentage points in the past three months. GPRO is keeping that momentum with today's news, adding 6.6% to trade at $59.13, and on pace to end atop its 200-day moving average for the first time.

Published on Jun 1, 2015 at 2:27 PM
Updated on Mar 19, 2021 at 7:15 AM
  • Intraday Option Activity
A number of big names are hitting notable highs thanks to some upbeat analyst attention, and eBay Inc (NASDAQ:EBAY) is no exception. The stock notched a record peak of $63.03 earlier, after KBW raised its price target to $70 from $65. The positive price action has sparked a rush of call activity in EBAY's options pits, with the contracts crossing at four times the average intraday pace, and a number of speculators calling for even higher highs by week's end.

Specifically, the security's weekly 6/5 63-strike call has received notable attention, and it seems safe to assume that new positions are being purchased here. By buying the calls to open, the goal is for EBAY to rally north of the strike by Friday's close, when the weekly series expires. Amid today's pop, delta on the call has more than doubled since last Friday's close, and is currently docked at 0.46.

Widening the sentiment scope reveals call buyers have been active in EBAY's options arena in recent months. In fact, the stock's 50-day International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) call/put volume ratio of 3.23 sits just 3 percentage points from a 52-week peak.

Elsewhere, EBAY's Schaeffer's put/call open interest ratio (SOIR) of 0.46 ranks lower than 80% of all comparable readings taken in the past year. Simply stated, short-term speculators are more call-heavy than usual toward EBAY.

Technically speaking, EBAY has been charting a path steadily higher since bottoming at a nearly two-year low of $46.34 in mid-October, up 36%. What's more, the stock powered through previous resistance in the $61 area on Friday, and was last seen up 2.6% at $62.95. Off the charts, eBay Inc (NASDAQ:EBAY) said former Pimco exec Daniel Tarman will serve as the company's chief communications officer once the PayPal split is complete.
Published on Jun 1, 2015 at 2:59 PM
Updated on Mar 19, 2021 at 7:15 AM
  • By the Numbers
Skepticism has been running high in Puma Biotechnology Inc's (NYSE:PBYI) options pits for some time. The drugmaker's 10-day put/call volume ratio across the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) is 3.07 -- with long puts more than tripling calls. What's more, this ratio is perched just 8 percentage points from a 12-month high.

Echoing this skepticism is PBYI's Schaeffer's put/call open interest ratio (SOIR) of 1.80. Not only does this SOIR indicate short-term put open interest nearly doubles call open interest, it also sits in the 90th percentile of its annual range.

These bearish bettors are in luck today, as PBYI's taken a 10% tumble to trade at $175.64 -- and landed on the short-sale restricted list. The shares were also temporarily halted earlier. Potentially pressuring the stock was news that nearly 40% of patients treated with PBYI's breast cancer drug neratinib developed severe diarrhea.

This isn't the first time the cancer treatment has weighed on the shares. PBYI gapped sharply lower on May 14 following the results of another neratinib trial. With today's losses, though, Puma Biotechnology Inc (NYSE:PBYI) is now sitting 7.2% below its year-to-date breakeven mark. Off the charts, the company will hold its investor/analyst meeting this evening.
Published on Jun 1, 2015 at 3:29 PM
Updated on Mar 19, 2021 at 7:15 AM
  • Intraday Option Activity

Rumors that activist investor Carl Icahn may be interested in taking a stake in LinkedIn Corp (NYSE:LNKD) have pushed the shares 3.1% higher today to $201.02. The stock is now on pace to close above its 20-day moving average for the first time since its bear gap from early last month. Elsewhere, call players have stepped up, with the contracts crossing at an accelerated intraday rate. 

LNKD's weekly 6/5 series is in high demand, making up eight of its 10 most popular strikes. One option that's noteworthy is the weekly 6/5 210-strike call, which it appears traders are buying to open. That means they're betting on the shares to gain at least 4.5% and topple $210 by week's end, when the options expire. 

This is just more of the same from LNKD's option traders. Over the past 10 days at the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), the stock has accumulated a call/put volume ratio of 1.88, which is only 9 percentage points from an annual high. 

Analysts, too, have made their bullish expectations clear. Of the 26 brokerage firms with coverage on the stock, 19 say it's a "buy" or better. Also, LinkedIn Corp's (NYSE:LNKD) consensus 12-month price target of $254.03 stands at a 26.4% premium to current levels. 


Published on Jun 1, 2015 at 9:24 AM
Updated on Mar 19, 2021 at 7:15 AM
  • Analyst Downgrades

Analysts are weighing in today on networking specialist Juniper Networks, Inc. (NYSE:JNPR), furniture retailer Pier 1 Imports Inc (NYSE:PIR), and biopharmaceutical concern Mirati Therapeutics, Inc. (NASDAQ:MRTX). Here's a quick roundup of today's bearish brokerage notes on JNPR, PIR, and MRTX.

  • JNPR is off 1.4% ahead of the open, after MKM Partners cut its outlook on the shares to "sell" from "neutral." The downgrade comes despite the equity's 24.6% year-to-date climb to $27.80, or the stock's annual high of $28.26, tagged just last week amid M&A rumors. Most analysts have taken a skeptical approach, with 16 of 24 brokerage firms deeming Juniper Networks, Inc. a "hold." Conversely, option traders have been decidedly bullish on the stock. Over the past 10 days at the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), nearly 66 calls have been bought to open for every put. This 10-day call/put volume ratio of 65.72 stands higher than all similar readings from the past year.

  • Wedbush weighed in on PIR this morning, lowering its grade to "neutral" from "outperform," while also reducing its price target to $12 from $16. The shares have already given back almost 28% in the past 12 months to settle at $12.71 on Friday. Put players have since stepped up, with Pier 1 Imports Inc's Schaeffer's put/call open interest ratio (SOIR) registering at 5.16, meaning put open interest is five times that of call open interest among options that expire in the next three months. Plus, this reading is only 1 percentage point from an annual high, telling us that PIR's near-term option traders are way more put-skewed than normal.

  • MRTX is getting annihilated in electronic trading, pointed 20% lower. Traders are reacting to a bearish note from Brean Capital, which lowered its rating to "hold" from "buy," citing lackluster data on MRTX's lung cancer drug. (On the flip side, the stock scored price-target hikes from Jefferies and Wedbush.) The anticipated drop would certainly mark a change of pace for Mirati Therapeutics, Inc., as it has nearly doubled in 2015, hitting an all-time high of $37.43 on Friday, before closing at $36.66. 
Published on Jun 1, 2015 at 9:24 AM
Updated on Mar 19, 2021 at 7:15 AM
  • VIX and Volatility

Happy Monday! If you were waiting all weekend for a good Twitter discussion about whether AccuShares Spot CBOE VIX Fund Up Shares (VXUP) will morph from tracking CBOE Volatility Index (VIX) futures early in the "cycle" to tracking closer to VIX itself later in the cycle, well … you're in luck! 

I don't at all disagree. My only point is that it will also track VIX itself as it nears the distribution date, peaking at Day 0 (the 15th). Anyway, here's what Eli has to say in his piece: 

"… [Y]ou are probably asking yourself, what about the Distribution Date and its implications? After all, the Distribution Date of VXUP usually falls near but not on the expiration date of the future and how is this analysis of arbitrage involving futures whose life spans several Distribution Dates relevant? The crucial point to understand here is that the Regular Distribution is a non-event value-wise for a VXUP position just as a split or a dividend are for a position in a regular stock. A split in the value of a stock does not change the value of the position held. As for a dividend distribution, the price of the stock goes down by the dividend amount on the ex-dividend day but the value of the whole position consisting of stock plus a cash dividend remains the same. Say that you know that the next day a stock is going to go ex-dividend. You also know exactly what the dividend will be. If you buy at the close extra stock with your anticipated cash dividend, your stock position will remain the same." 

OK, that's all true. The distribution is a de facto dividend. If you buy VXUP "Distribution On" on the 15th, you are doing the same exact thing as if you buy it the next day at the same price as the day before, minus the accumulated distribution.  There's no value added or subtracted by the mere fact that they're paying the distribution.

But that's not really the issue. Rather, it's whether the imminence of the distribution causes VXUP to track VIX itself. Which brings us to Eli's next graph: 

"Holders of VXUP can do exactly that at the close of each Distribution Date. Because the rules of the Regular Distribution are fixed and known in advance, an investor can anticipate exactly how much cash he will receive (if at all) and purchase additional VXUP in that amount."

And that's my only real point. He anticipates that exact amount by knowing the distribution amount in the "bank," plus the move in that last day. And that last day move is entirely the move in VIX itself, as best I understand it. So, the move in VXUP on Day 0 should achieve maximum correlation with VIX itself. He goes on: 

"In this way, the Distribution Dates become non-issues in relation to arbitraging VXUP and the VIX futures (the only risk being lack of liquidity resulting in large bid-ask spreads)."

That's likely true, too. I would suggest the real issue is none of this is mutually exclusive. 

Or maybe that's the real non-issue. This is giving me a headache, and we'll have a better idea when we actually see it. Maybe VXUP gets huge someday and it starts dragging around VIX futures? I doubt it, but who knows?

Disclaimer: Mr. Warner's opinions expressed above do not necessarily represent the views of Schaeffer's Investment Research.

Published on Jun 1, 2015 at 9:26 AM
Updated on Mar 19, 2021 at 7:15 AM
  • Analyst Upgrades

Analysts are weighing in on banking giant Citigroup Inc (NYSE:C), beverage behemoth The Coca-Cola Co (NYSE:KO), and biotechnology firm Heron Therapeutics Inc (NASDAQ:HRTX). Here's a quick roundup of today's bullish brokerage notes on C, KO, and HRTX.

  • Goldman Sachs upgraded C to "buy" from "neutral," and raised its price target to $61 from $57, saying the market is lowballing the firm's return on earnings forecast. Separately, Citigroup Inc said it is closing the doors at Banamex USA -- its California-based Mexican banking subsidiary -- amid money-laundering accusations. Technically speaking, the stock has been chugging higher since hitting a 2015 low of $46.60 on Jan. 16, up 16%. More recently, though, this upside has stalled out in the $55-to-$55.50 region, with C closing at $54.08 on Friday. Option traders have taken the glass-half-empty approach in recent weeks, and at the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), the stock's 10-day put/call volume ratio of 0.82 ranks in the 97th annual percentile.
  • KO saw its rating raised to "outperform" from "market perform" and its price target bumped to $48 from $44 at BMO -- representing expected upside of 17.2% to last Friday's settlement at $40.96, and a trek into never-before-seen territory. As such, the blue chip is poised to follow the broader Dow into the green today. On the charts, KO has spent most of the past year bouncing between $39 and $45. Option traders have kept the faith, though, per the security's 10-day ISE/CBOE/PHLX call/put volume ratio of 5.21, which rests in the 73rd percentile of its annual range. Simply stated, calls have been bought to open over puts at a faster-than-usual clip.
  • Leerink raised its price target on HRTX to $26 from $20 -- an area not seen since March 2010. The bullish brokerage note has shares of Heron Therapeutics Inc up 8% in electronic trading, and on their way to notch a new five-year high. This positive price action only echoes the stock's recent technical showing, with HRTX adding 60% on Friday, thanks to some well-received drug data and upbeat analyst attention -- and roughly doubling in value this year. Against this backdrop, it's not surprising to see the brokerage bunch in HRTX's corner. In fact, all four analysts covering the shares maintain a "strong buy" rating, while the average 12-month price target of $29.60 stands at a 50% premium to last week's settlement at $19.76.
Published on Jun 1, 2015 at 9:39 AM
Updated on Mar 19, 2021 at 7:15 AM
  • Bernie's Content

The following is a reprint of the market commentary from the June 2015 edition of The Option Advisor, published on May 21. For more information or to subscribe to The Option Advisor, click here.

"Stocks end lower amid bond volatility," USA Today, May 12
"Rise in Long-Term Interest Rates Pushes Down Market," New York Times, May 12
"Bond market volatility unsettles stocks," Financial Times, May 12
"Stocks whipsawed by rising bond yields," Chicago Tribune, May 12

Equity benchmarks around the world experienced a patch of bumpy price action in mid-May, as a sell-off in German bunds spilled over into U.S. Treasuries. Yields on both instruments jumped as prices fell, and rattled investors dumped stocks in a hurry.

On May 12 -- a day that saw the S&P 500 Index (SPX) down 0.9% at its session lows, resulting in the Greek chorus of headlines above -- the CBOE 10-Year Treasury Note Yield Index (TNX) topped out at 23.35, its highest level in nearly six months.

Chances are, you're already familiar with this type of interplay between Treasury notes and stocks. When bond prices fall, yields rise -- which translates into increased borrowing costs. Not only do higher yields diminish the appeal of investing in equities, they also raise the threat of constricted corporate spending. As a result, a sudden or unexpected rise in yields can trigger equally sudden weakness in stocks.

However, a deeper dive into the data suggests there may be more to this relationship than occasional short-lived, knee-jerk jolts. Our senior quantitative analyst, Rocky White, examined the correlation between S&P performance and the spread between 2-year and 10-year Treasury notes. As the chart below clearly displays, the market crashes in 2000 and 2008 occurred shortly after the spread hit an extreme low.

150521tnx1

As of May 15, the spread between these notes was about 165 basis points, with the 10-year yield at 2.228% and the 2-year yield at 0.580%, according to MarketQA. To put this in historical context, the table below breaks down yield spreads into five "brackets," each tallying the same number of returns -- with Bracket 1 including the narrowest spreads, and Bracket 5 the widest. Reviewing the data back to 2000, the current yield spread is in the third quintile -- on the high end of "average," as this metric goes.

You'll also notice a column displaying the corresponding 52-week S&P returns for each of these yield-spread ranges. Over the past 15 years, stocks have performed well when yield spreads are relatively wide. Brackets 4 and 5 both reflect substantially positive average and median 52-week S&P gains, with a preponderance of positive returns. On the other end of the spectrum, Brackets 1 and 2 show the benchmark index wavering between modest gains and notable losses, with the positive and negative returns closer to parity.

A more robust lending environment is perhaps the simplest explanation for this correlation between a wider yield spread and a stronger S&P. When spreads are wide, banks that borrow at short-term rates and lend at longer-term rates experience better lending margins -- and are thus more willing to lend, given the potentially increased profits from such lending activity. When borrowing needs are more likely to be met by lenders, new projects and expansion are more likely to occur, thereby contributing to earnings growth.

150521tnx2

Based on this historical data, it would appear that Bracket 4 is the "sweet spot" for stocks -- which means we'd want to see the spread widen from here. In fact, the direction of this indicator may be just as relevant as the absolute reading. A yield spread that rises (or widens) from a low range can be viewed as bullish for stocks, while a declining (narrower) spread can be considered a potential red flag for an upcoming period of equity underperformance.

Meanwhile, from a technical analysis perspective, traders should take note of the 320-day moving averages for both TNX -- which, as you may have gathered, proxies the yield on 10-year notes -- and the iShares 20+ Year Treasury Bond ETF (TLT), which tracks the prices of long-term bonds. Peaks in TNX have been contained by its 320-day trendline since last summer, including the pop earlier this month. On the other hand, TLT is currently finding its footing at this moving average -- setting the stage for a possible repeat of TLT's April 2014 test of support at its 320-day, which preceded a substantial 10-month advance in the shares.

Published on Jun 1, 2015 at 9:40 AM
Updated on Mar 19, 2021 at 7:15 AM
  • Buzz Stocks

U.S. stocks kicked off the week on a high note, with the major indexes sitting in the black. In company news, today's stocks to watch include software giant Microsoft Corporation (NASDAQ:MSFT), as well as drugmakers Vascular Biogenics Ltd (NASDAQ:VBLT) and Celladon Corp (NASDAQ:CLDN)

  • MSFT announced its Windows 10 operating system will be available globally on Wednesday, July 29. Users of Windows 7 and 8.1 can upgrade to the new version for free. In early trading, Microsoft Corporation shares are 0.7% higher at $47.17, but have struggled longer term -- up less than 2% year-to-date. As such, options traders have been buying to open puts over calls at an accelerated clip in recent months. MSFT's 50-day International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) put/call volume ratio of 0.73 ranks just 12 percentage points from a 12-month peak. Echoing this, the stock's Schaeffer's put/call open interest ratio (SOIR) of 0.79 sits in the put-skewed 70th percentile of its annual range.

  • VBLT is 7.3% higher at $8.64, thanks to encouraging trial results from its brain tumor drug, VB-111. From a relative-strength perspective, Vascular Biogenics Ltd has outperformed the broader S&P 500 Index (SPX) by 117 percentage points over the last 20 sessions, and is more than 47% higher year-to-date. Not surprisingly, all three analysts tracking the stock rate it a "strong buy," and VBLT's consensus 12-month price target of $13 stands in territory not charted since a mid-February bear gap.

  • Finally, CLDN is looking for a strategic partnership or acquisition, following the disappointing performance of its heart drug in a mid-stage trial. The company also named Chief Financial Officer Paul Cleveland as its new CEO, after Krisztina Zsebo resigned from the post. These developments have the equity sitting 12.1% higher at $2.59. Longer term, though, Celladon Corp has performed terribly, shedding 86.7% of its value in 2015. On the sentiment front, each of the four brokerage firms following CLDN consider it a "hold," while its average 12-month price target of $2.33 is roughly in line with current trading levels.
Published on Jun 1, 2015 at 11:05 AM
Updated on Mar 19, 2021 at 7:15 AM
  • Intraday Option Activity

Traders are rushing to ImmunoGen, Inc. (NASDAQ:IMGN) today, after the company announced its experimental ovarian cancer treatment appeared to have positive effects on patients in early testing. The shares have skyrocketed 63.7% to $14.70, and earlier hit an annual high of $14.75. Moreover, call volume is currently at 67 times the expected intraday pace, with the options making up eight of IMGN's 10 most active contracts.

The most popular option is the now in-the-money June 14 call, and data is suggesting buy-to-open activity. By purchasing the calls, traders are betting on extended gains above $14 before the contracts expire at the close on Friday, June 19.

This bullish bias is part of an ongoing trend in the stock's option pits. For example, IMGN's 10-day International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) call/put volume ratio sat at 4.64 on May 12, but now registers at 34.37. This reading shows over 34 calls have been bought to open for every put during the past two weeks, and, what's more, it ranks higher than nearly four-fifths of similar readings from the past year.

The optimism in the stock's option pits coincides with its recent surge on the charts. Since touching a multi-year low of $5.34 on Dec. 23, IMGN has added over 175%. With today's gains, the shares are set to take out their 320-day moving average for the first time since March 2014.

Analysts, though, remain mostly skeptical. Of the 10 brokerage firms with coverage on ImmunoGen, Inc. (NASDAQ:IMGN), six say it's a "hold" or worse, while the average 12-month price target of $9.19 stands at a discount to current trading levels. However, it appears some analysts are beginning to change their tune. Specifically, Morgan Stanley upgraded IMGN to "equal weight" from "underweight," and doubled its price target to $10 from $5. Additionally, Canaccord Genuity and RBC raised their respective price targets to $20 and $15.

Published on Jun 1, 2015 at 11:26 AM
Updated on Mar 19, 2021 at 7:15 AM
  • Intraday Option Activity
SINA Corp (NASDAQ:SINA) said its CEO is pouring $456 million in cash into the company, and as a result, the stock is soaring today. At last check, shares of SINA were up 23% at $50.06, and easily on track to close north of their 320-day moving average for the first time since March 2014. In the options pits, overall volume has jumped to 10 times what's typically seen at this point in the day, with traders split on the security's long- and short-term trajectory.

Call players have set their sights on the $50 mark, with possible buy-to-open activity detected at the June and January 2016 50 strikes. For those purchasing new positions, the goal is for SINA to extend its lead north of the round-number $50 level through the respective expiration dates. Amid today's rally, delta on the front-month strike has jumped to 0.50 from 0.039 at last Friday's close, while delta on the longer-term call has moved to 0.56 from 0.29.

Option bears, meanwhile, are scooping up SINA's weekly 6/5 46.50-strike put -- and it appears as if most of the action is being driven by buyers. If traders are indeed buying to open the puts, the expectation is for the equity to stage a quick retreat, and move south of the strike by Friday's close -- when the weekly series expires.

From a wider sentiment perspective, it's been call buyers who have been active in SINA's options pits. At the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), the stock's 10-day call/put volume ratio of 4.03 rests in the 82nd annual percentile.

Echoing this call-skewed bias is the security's Schaeffer's put/call open interest ratio (SOIR) of 0.48. Not only does this indicate that call open interest more than doubles put open interest among options with a shelf-life of three months or less, but it ranks lower than 92% of similar readings taken in the past year. Simply stated, speculative players have rarely been as call-heavy toward SINA Corp (NASDAQ:SINA) as they are now.
Published on May 29, 2015 at 11:53 AM
Updated on Mar 19, 2021 at 7:15 AM
  • Intraday Option Activity
ITT Educational Services, Inc. (NYSE:ESI) is having a banner day, soaring 75% to trade at $4.22. Not surprisingly, the stock's options pits are hopping, with total intraday volume running at 23 times what's expected.

One of ESI's most active options is the June 3 call, and Trade-Alert confirms one speculator bought to open a sweep of 2,309 contracts for $0.45 apiece, minutes after the open. In other words, this traders paid a total of just over $100,000 (premium paid * number of contracts * 100 shares per contract), expecting the shares to topple $3.45 (strike plus premium) by June expiration. At the time of the trade, ESI was lingering near $2.56, and with the bid on this strike currently at $1.21, it looks like the early morning buyer has already made a healthy profit.

Shifting gears, short sellers have been keyed in on ESI for some time. Currently, three-fifths of the stock's float is sold short, representing more than six weeks of trading activity, at the average daily volume.

This bearish bias is understandable, given ITT Educational Services, Inc.'s (NYSE:ESI) woeful technical track record -- exacerbated by recent fraud charges. While the shares have surged today -- possibly on the firm's 2014 10-K filing -- they've surrendered 56% year-to-date, and earlier tested resistance at their 40-day moving average.

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