Earnings Preview: MGM Resorts International, Momenta Pharmaceuticals, Inc., and Walter Energy, Inc.

Analyzing recent option activity on MGM Resorts International (MGM), Momenta Pharmaceuticals, Inc. (MNTA), and Walter Energy, Inc. (WLT)

Feb 13, 2015 at 9:36 AM
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Among the stocks gearing up to report earnings on Tuesday morning (Feb. 17) are casino concern MGM Resorts International (NYSE:MGM), generic drugmaker Momenta Pharmaceuticals, Inc. (NASDAQ:MNTA), and coal producer Walter Energy, Inc. (NYSE:WLT). Below, we'll break down how options traders are positioning themselves, and how much speculators are willing to pay for their bets on MGM, MNTA, and WLT.

  • MGM has been in recovery mode, with the shares up about 23.1% from their mid-December annual low of $17.25 to rest at $21.24, including a 2.4% gain yesterday. Despite the stock's recent rebound, speculators have displayed a strong preference for puts over calls ahead of Tuesday morning's earnings release, with MGM Resorts International's 50-day International Security Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) put/call volume ratio of 1.75 ranking higher than all other similar readings taken over the past year. Historically, in the session following its last eight earnings reports, MGM has moved an average of 3.3%. Short-term speculators are paying inflated prices for the stock's options, as its Schaeffer's Volatility Index (SVI) of 43% sits in the 71st percentile of its annual range.

  • MNTA is in the midst of a long-term slide, with the shares off nearly 35% year-over-year -- including a 12% drop from their 2015 high of $13.36 on Jan. 7 -- to hit $11.76. Elsewhere, short-term calls are popular in Momenta Pharmaceuticals, Inc.'s options pits, per its Schaeffer's call/put open interest ratio (SOIR) of 0.19, which sits in the 12th percentile of its annual range. Simply stated, traders have only been more call-skewed 12% of the time in the past year, when it comes to options with a shelf-life of three months or less. In the session following its last four earnings reports, MNTA has posted an average loss of about 3.4%. Near-term options for the equity are available for relatively inexpensive prices, as its SVI of 56% sits in the 36th percentile of all similar readings taken over the past year.

  • The shares of WLT have been getting crushed, with the struggling equity down more than 90% year-over-year to land at $1.04, including a 1.9% drop yesterday. Sentiment in the security's options pits appears to be bullish, as Walter Energy, Inc.'s 50-day ISE/CBOE/PHLX call/put volume ratio of 2.54 is just 4 percentage points away from an annual peak. However, roughly 39% of WLT's available float is sold short -- which would take nearly eight days to cover, at average volumes -- suggesting that a portion of these calls could have been initiated at the hands of short sellers looking to hedge their positions. Looking back, the bears appear to have the advantage -- in the session following the company's last eight earnings reports, the shares of WLT have fallen all but one time, for an average loss of 2.6%. Traders are paying above-average premiums for their bets on the stock, as WLT's SVI of 210% registers in the 62nd percentile of its annual range.

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