Earnings Preview: CBS Corporation, Groupon, Inc., and Shire plc

Analyzing recent option activity on CBS Corporation (CBS), Groupon Inc (GRPN), and Shire PLC (ADR) (SHPG)

Feb 11, 2015 at 3:46 PM
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Among the stocks gearing up to report earnings tomorrow are media giant CBS Corporation (NYSE:CBS), online coupon issue Groupon Inc (NASDAQ:GRPN), and biopharmaceutical firm Shire PLC (ADR) (NASDAQ:SHPG). Below, we'll break down how options traders are positioning themselves, and how much speculators are willing to pay for their bets on CBS, GRPN, and SHPG.

  • CBS is down 0.2% this afternoon to $56.90, ahead of the release of its fourth-quarter earnings data tomorrow night. Looking back, the shares of CBS have been stair-stepping higher over the past few months, with the equity up 16.5% since hitting an annual low of $48.83 in October. Meanwhile, put buying has picked up steam, with CBS Corporation's 10-day International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX put/call volume ratio of 1.02 ranking higher than 83% of all similar readings taken in the past year. Historically, in the session following its last eight earnings reports, CBS has notched an average gain of 1.4%. Speculators are paying fair prices for their short-term bets on the stock, per its 30-day at-the-money (ATM) implied volatility (IV) of 29.2%, which sits in the 53rd percentile of its annual range.

  • Despite broad-market headwinds, GRPN is up 1.9% to reach $7.56, ahead of tomorrow night's earnings report. From a longer-term perspective, Groupon Inc has been a technical laggard, with the shares down 30.5% over the last year. Accordingly, sentiment in the options pits is nearing a pessimistic peak, with GRPN's 10-day ISE/CBOE/PHLX put/call volume ratio of 0.58 sitting just 3 percentage points away from the highest reading taken over the past year. If history is any indicator, traders hoping for a large post-earnings swing from the stock could be in luck -- in the session following its last eight earnings reports, GRPN has moved an average of 17.6%, including a 22% gain last October. Plus, a check of the stock's near-term, at-the-money straddle pricing implies traders are anticipating a 13.3% move. Short-term speculators are paying up for their bets on GRPN, as its 30-day ATM IV of 75.4% is higher than 90% of all similar readings from the past year.

  • Ahead of tomorrow morning's earnings release, SHPG is up about 1% to hit $218.35, adding to a roughly 2.7% year-to-date gain. Going back further, Shire PLC has gained a staggering 40% since mid-October, when the stock gapped lower to $156.25. Surprisingly, puts are the options of choice, with SHPG's 10-day ISE/CBOE/PHLX put/call volume ratio of 1.20 ranking higher than three-fourths of all similar readings taken over the past year. However, the security has advanced in all but two of the sessions following its last eight earnings release, averaging a gain of roughly 1.1%. Short-term options on SHPG are available for historically average prices, as its 30-day ATM IV of 31.6% sits in the 55th percentile of its annual range.

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