Earnings Season Highlights

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A collection of noteworthy post-earnings reactions
Published on Apr 13, 2023 at 3:23 PM
  • Quantitative Analysis

Wayfair Inc (NYSE:W) stock is up 3.3% to trade at $35.18 at last check, bouncing off a floor at the $30 region. A historically bearish trendline that has been in place since a late February bear gap recently turned down the equity's latest rally, though, and may further pressure it into its already steep 69.7% year-over-year deficit.

The trendline in question is Wayfair stock's 40-day moving average. Per Schaeffer's Senior Quantitative Analyst Rocky White's latest study, W saw six similar signals during the last three years, and was higher one month later 83% of the time to average a 4.9% decline. A comparable move from its current perch would place shares back below $34.

W 40 Day

Short sellers are firmly in control, despite short interest dipping 4.8% in the most recent reporting period. The 24.14 million shares sold short now make up 31.6% of the stock's available float.

The options pits also lean bearish. At the International Securities Exchange (ISE), Cboe Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), Wayfair stock's 50-day put/call volume ratio of 1.75 sits higher than 86% of readings from the last 12 months.

Premiums are reasonably priced right now, per W's Schaeffer's Volatility Index (SVI) of 86% that sits in the 6th percentile of its annual range. This means options traders are pricing in low volatility expectations at the moment -- a boon for options buyers. 

Published on Apr 13, 2023 at 2:59 PM
Updated on Apr 13, 2023 at 3:13 PM
  • Intraday Option Activity
  • Buzz Stocks

Stocks are bouncing in the wake of the latest encouraging inflation reading. Three names making notable moves include Delta Air Lines Inc (NYSE:DAL), biotech stock Crispr Therapeutics AG (NASDAQ:CRSP), and Bitcoin-adjacent Marathon Digital Holdings Inc (NASDAQ:MARA)

Top-Line Whiff Grounds Delta

Delta stock was last seen off by 1.1% to trade at $33.44. The airliner's first-quarter earnings and revenue fell short of estimates, two whiffs that overshadowed an upbeat second-quarter forecast. DAL is holding onto its year-to-date breakeven level today.

No analyst notes have come through today, but its noteworthy that 15 of the 16 in coverage rate the equity a "strong buy," with zero "sells" on the books. More headwinds on the charts could prompt a shift in the brokerage sentiment. 

Big Step Forward for Gene Editing

CRSP is one of the best stocks on the Nasdaq today, up 14.8% to trade at $49.90. The company's one-time gene editing therapies underwent an independent drug pricing review, and the group (ICER) deemed them as cost effective if priced at up to $1.9 million. The stock is now up 22% in 2023, breaking out of a month-long consolidation around $43-$45. 

With a healthy 16.4% of the shares' total available float sold short, tailwinds could come from an exodus of bearish bettors. And at the stock's average pace of trading, it would take those shorts almost 13 trading days to buy back their bets.  

MARA Gets the Bitcoin Bump

Another big gainer today is MARA, last seen 16.7% higher to trade at $11.62. The stock is heading toward its highest close since Nov. 2, rising in conjunction with a resurgent Bitcoin (BTC). The cryptocurrency adjacent company is up 273% in 2023, and has nearly quadrupled in value off its Dec. 28 annual low of $3.11. 

Options traders are betting bearishly, per the stock's 10-day put/call volume ratio of 3.46 at the International Securities Exchange (ISE), Cboe Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX). Not only does that indicate puts outflank calls by a more than 3-to-1 ratio, but that ratio sits in the elevated 89th percentile of its annual range.

Published on Apr 13, 2023 at 2:23 PM
  • Earnings Preview

Wells Fargo & Co (NYSE:WFC) is slated to report first-quarter results before the market's open tomorrow, and analysts are estimating profits to range between 95 cents and $1.38 per share.

Over the last eight quarters, Wells Fargo stock has had a positive earnings reaction six times. In the last two years overall, WFC averaged a 3.8% move the day after earnings, regardless of direction. This time around, the options market is pricing in a slightly larger 5.6% next-day swing. 

Should history be any indicator, this could bode well for Wells Fargo stock, which is continuing to distance itself from a March 24 crater to more than two-year lows. Ahead of the event, WFC was last seen 0.7% higher at $39.47, following news that Saul Van Beurden will take over as CEO of the firm's Consumer & Small Business Banking Unit. Year-to-date, the security is down 4.4%.

WFC Chart April 132023

Analysts are relatively bullish toward the stock, with nine out of 13 rating it a "buy" or better. The 12-month consensus price target of $48.59, meanwhile, is a 23.1% premium to Wells Fargo stock's current level of trading.


Published on Apr 13, 2023 at 2:12 PM
  • Strategies and Concepts

Tax Day Primer: How Options Trading is Impacted

by Schaeffer's Digital Content Team

Many options traders, unfortunately, don't have a complete understanding of the way their profits or losses will be taxed and how that impacts profit margin, capital gains taxes, and how these taxes can impact profit margins. However, traders can implement tax planning strategies to help mitigate capital gains taxes through a deeper understanding of options trading and the applicable taxes.

Are options trading losses tax-deductible?

"Generally, yes, losses incurred from trading options are considered short-term capital losses depending on the length of time that an options trader holders the option. Accordingly, as a capital loss, traders can only use losses to offset capital gains." -- Attorney Josh Lowenthal

"Losses on options for "investors" are typically treated as capital losses which offset capital gains and up to $3k of other income per year. However, certain option traders may qualify for "trader" status which allows for an election to "mark-to-market" at the end of the year.  If this "mark-to-market" election is made, the taxpayer is allowed to classify losses as ordinary losses which can offset any type of income with no limits, be exempted from wash sale rules, but must assume any open position on December 31st are closed." -- Eric Bronnenkant, CPA, CFP at Betterment

What is the IRS Wash Sale Rule? According to Fidelity, options traders must also pay attention to the IRS Wash Sale Rule, which "prohibits selling an investment for a loss and replacing it with the same or a "substantially identical" investment 30 days before or after the sale. If you do have a wash sale, the IRS will not allow you to write off the investment loss which could make your taxes for the year higher than you hoped."

Are options trading profits taxed?

    "In short, yes, unless a Mark-to-Market election is made, options are considered Capital in nature rather than ordinary. As such, any gains in excess of capital losses are going to be taxed at capital gains rates." -- Attorney Josh Lowenthal

    "Net profits from options trading are typically subject to capital gains taxes for taxpayer's treated as investors. Most gains are treated as short-term capital gains unless a long options position is held for over 1 year (which would qualify for long-term gains treatment). Short options positions which are short covered or expire worthless have a short-term holding period regardless of how long the contract was open. If the taxpayer qualifies for "trader" status, net trading profits are taxed as ordinary income (after business expenses but exempt from self-employment tax)."  -- Eric Bronnenkant, CPA, CFP at Betterment

    What are capital gains? Capital gains are generally defined as the profits received from selling a capital asset – or an investment – such as stock market assets or property. The capital gains tax is a form of double taxation, which means after the profits from selling the asset are taxed once; a double tax is imposed on those same profits.

    What is a Mark-to-Market election? According to the Tax Advisor, "Under the mark-to-market rules, dealers and eligible traders are treated as having sold all their securities on the last day of the tax year at their fair market value (FMV), causing gain or loss to be taken into account for the year."

    How can I be classified as a Trader by the IRS instead of an Investor?

    According to Mr. Bronnenkant, "If an investor is trying to evaluate whether they meet the requirements for "trader" status and the "mark-to-market" election, they should seek out a tax advisor who has significant experience with active trading clients. The IRS does not have a bright line test but the more factors in the taxpayer's favor, the more likely it is that they can qualify.  Making these elections always comes with the risk that the IRS may disagree with their position and reclassify the taxpayer back to "investor" status (losing ordinary loss treatment, losing deduction for trading expenses, and bringing back the wash sale rules). The IRS states that the "following facts and circumstances should be considered in determining if your activity is a securities trading business:

    1. Typical holding periods for securities bought and sold;
    2. The frequency and dollar amount of your trades during the year;
    3. The extent to which you pursue the activity to produce income for a livelihood; and
    4. The amount of time you devote to the activity."

    Still confused? An expert can pull it all together for us!

    Let's start with Ryan Flanders CFA, Chief Investment Officer of The Flanders Group. Ryan says, "Trading options are considered the same as trading any other security and fall under the same IRC tax code.  For this analysis, we will assume options are being bought and sold as a trading mechanism, rather than with the intention of allowing them to be exercised (as they are designed).

    As with any other security, a trader may use short term-losses to offset short-term gains and long-term losses to offset long-term gains.  After that step, you will then reconcile short-term gain/loss with long-term gain/loss to determine whether you benefit from capital gain tax treatment (long-term) or if its taxed as ordinary income (short-term).  Keep in mind options gains and losses are combined with all other capital assets, so you must account for all securities together to determine your gains and losses (including stocks, bonds, crypto, etc.). 

    Most of the time options are considered to be short-term rather than long-term as you must hold the contract for longer than 365 days for it to be considered a long-term gain/loss.  Another item that often trips up option traders is the IRS wash sale rule, which disallows a loss if you sell and then repurchase a "substantially-identical" investments 30 days before or after the sale.  Often traders will try to "scalp" the same expiry and strike throughout the day, which can trip up the wash-sale rule and disallow any potential losses that had accumulated from that position."

    We spoke with Stuart Weichsel, a partner at Gallet Dreyer & Berkey. According to Weichsel, "Cash settled equity options are subject to simple rules, with many complex exceptions.  When options are exercised through the purchase or sale of the underlying security (instead of closed out), the option transaction and the underlying purchase or sale are integrated. Some options are subject to the special Sec. 1256 mark-to-market rules.  

    All options are subject to the Sec. 1292 straddle rules--preventing a taxpayer from entering into offsetting option transactions and recognizing only the “loss leg”  of the positions in the first tax year to maximize tax losses while leaving unrealized gains.  (There is an exception to the Sec. 1292 rules for a taxpayer issuing a “covered call.”  The close out of the call at a loss is not suspended despite the offsetting gain on the covered stock).

    Finally, the Sec. 1259 Constructive Sale rules may apply if the equity options are used to limit risk in an appreciated position, engaging in a “constructive sale.”   Using options to enter into a constructive sale may cause the realization (and taxation) of the otherwise unrealized gain on the appreciated position." 

    Published on Apr 13, 2023 at 1:00 PM
    • The Week Ahead
    Published on Apr 13, 2023 at 12:33 PM
    • Midday Market Check
    Published on Apr 13, 2023 at 10:31 AM
    • Buzz Stocks

    Harley-Davidson Inc (NYSE:HOG) stock is down 4.3% at $35.75 at last glance, after news that Gina Goetter will step down as CFO at the end of the month to join Hasbro (HAS), with Vice President and Treasurer David Viney to serve as interim CFO.

    BofA Global Research threw in a bear note, cutting HOG's price target to $55 from $65. Plus, UBS said the company's first-quarter retail decline may be worse than anticipated. Analysts are hesitant toward the equity, with four of seven in coverage calling it a tepid "hold."

    On the charts, the stock seems to have found support at the $35.50 level after its February plummet, though the $39 region rejected the past two rallies. Year-to-date, HOG is down 14%. 

    Puts have been much more popular than usual in the options pits, per HOG's 50-day put/call volume ratio of 3.90 at the International Securities Exchange (ISE), Cboe Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), which stands higher than 93% of readings from the last year. 

    These options are reasonably priced, as HOG's Schaeffer's Volatility Index (SVI) of 38% sits in the 26th percentile of its annual range. This means options traders are pricing in relatively low volatility expectations at the moment -- a boon for options buyers. 

    Published on Apr 13, 2023 at 10:19 AM
    • Intraday Option Activity
    • Buzz Stocks
    Published on Apr 13, 2023 at 9:26 AM
    Updated on Apr 13, 2023 at 9:26 AM
    • Opening View

    Stock futures are modestly higher this morning, as traders unpack another cooler-than-expected inflation report. March's producer price index (PPI) dropped 0.5% instead of coming in flat, and fell to 2.7% from 4.9% year-over-year. Additionally, core wholesale prices shed a surprise 0.1% last month. Meanwhile, weekly jobless claims rose to 239,000 compared to analysts' expectations of a rise to 235,000.

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

    • Behind Shopify stock's surge. 
    • A look at the yield curve inversion from a historical standpoint. 
    • Plus, DAL pops on forecast; bear note pushes FSLR lower; and SHOO boosted on upgrade.

    Futures April13

    5 Things You Need to Know Today

    1. The Cboe Options Exchange (CBOE) saw more than 1 million call contracts and 710,264 put contracts traded on Wednesday. The single-session equity put/call ratio rose to 0.70 and the 21-day moving average stayed at 0.78.
    2. Delta Air Lines Inc (NYSE:DAL) is up 2.4% premarket, brushing off a first-quarter earnings miss after the company issued a strong second-quarter outlook, amid "record advance bookings for the summer." Year-to-date, DAL is up 2.7%. 
    3. Shares of First Solar Inc (NASDAQ:FSLR) are down 1.2% in electronic trading, after a downgrade from Deutsche Bank to "hold" from "buy." Though the stock is pulling back further from its Mar. 30, 14-year high, the $200 level lingers as support. Since the start of the year, FSLR is up 38.8%.
    4. Citigroup upgraded Steven Madden Ltd (NASDAQ:SHOO) to "buy" from "neutral," with a price-target hike of $2 to $42, with the analyst in question noting the potential for strong wholesale orders. SHOO is up 4.4% before the bell, and is up 6.7% in 2023.  
    5. There is no more economic data of note today. 

    Buzz 0413

    Asian Markets Unpack Export, Import Data

    Asian markets closed Wednesday mostly higher, shrugging off the hawkish Fed minutes stateside. In China, exports grew 14.8% in March to beat expectations and snap a five-month streak of declines. Nevertheless, the Shanghai Composite fell 0.3%, while Hong Kong’s Hang Seng added 0.2%. South Korea’s Kospi tacked on 0.4%, after the country's import and export prices fell last month, with the former marking 11-straight monthly declines. Rounding out the region, the Bank of Japan (BoJ) reiterated its stance on monetary easing policy, helping the Nikkei rise 0.3%.

    European stocks are mixed this afternoon, as investors in the region also weigh U.S. inflation data. In addition, data from the Office for National Statistics showed the U.K. economy was flat in February. At last glance, London’s FTSE 100 is marginally higher and the German DAX is fractionally lower, while the French CAC 40 is up 1%. 


    Published on Apr 13, 2023 at 9:18 AM
    • Analyst Update
    Published on Apr 12, 2023 at 4:27 PM
    • Market Recap

    All three indexes moved between both sides of the aisle Wednesday, following this morning's lighter-than-expected March inflation report, but ultimately ended the day in the red. The Dow snapped a four-day win streak, while the S&P 500 and Nasdaq settled lower -- the latter marking its third-straight drop.

    All eyes were on the Federal Open Market Committee (FOMC) meeting minutes, which suggested that while the economy is now "sound," the recent banking crisis is likely to push the U.S. into a recession later in the year. Officials also expect gross domestic product (GDP) for 2023 to grow just 0.4%.

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

    Closing Indexes Summary April 12

    NYSE and Nasdaq Stats April 12

     Things to Know Today 

    1. Democrats in the U.S. House Committee on Energy and Commerce have asked to hold an immediate hearing regarding Texas Judge Matthew Kacsmaryk's suspension of the Food and Drug Administration's (FDA) approval of abortion pill mifepristone. The members said Kacsmaryk's decision will have “harmful reverberations.” (CNBC)
    2. The Treasury Department reported that the U.S. budget deficit hit $432 billion more than its 2022 shortfall in the fiscal first-half of this year, coming in at a reading of $1.1 trillion. (MarketWatch)
    3. Which shopping stock gapped higher after an impressive bull note.
    4. Billion-dollar takeover sends Triton stock surging. 
    5. Analyst: huge upside ahead for software stock.

    There were no earnings of note today.

    Unusual Options Activity April 12

    Oil Logs Highest 2023 Close 

    Oil closed higher following this morning's lighter-than-expected inflation reading and the refill possibility at the U.S. Strategic Petroleum Reserve. For the session, May-dated crude added $1.73, or 2.1%, to close at $83.26 per barrel -- its highest close since November 16.

    Slowing inflation sent gold futures higher today. June-dated gold gained $5.90 or 0.3%, to settle at $2,024.90 an ounce.

    Published on Apr 12, 2023 at 3:05 PM
    • Quantitative Analysis

    The shares of PulteGroup, Inc. (NYSE:PHM) have added more than 54% in the last six months. The security has been making its way higher with support from the 20-day moving average, after pulling back to the $52 region in March as it took a breather from a Feb. 2, one-year high of $60.89.

    PHM 20 Day

    A historically bullish signal now flashing could mean more tailwinds for PHM, which is today pacing for a third-straight daily win. According to Schaeffer's Quantitative Analyst Rocky White, PHM's latest peak comes amid historically low implied volatility (IV), which has been a bullish combination for the shares in the past.

    White's data shows seven other signals during the last five years when the security was trading within 2% of its 52-week high, while its Schaeffer's Volatility Index (SVI) sat in the 20th percentile of its annual range or lower. This is currently the case with PulteGroup stock's SVI of 29%, which sits in the 1st percentile of its annual range. 

    One month after these signals, shares were higher 57% of the time, averaging a 3.1% gain. From its current perch, a move of similar magnitude would place the equity at a fresh one-year high of $61.96.

    A sentiment shift in the options pits could push the shares higher still. This is per their Schaeffer's put/call open interest ratio (SOIR) of 3.87, which ranks higher than all other annual readings. This suggests short-term options traders have rarely been more put-biased.

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