Earnings Preview: Darden Restaurants, Inc., KB Home, and Tiffany & Co.

Analyzing recent option activity on Darden Restaurants, Inc. (DRI), KB Home (KBH), and Tiffany & Co. (TIF)

Mar 19, 2015 at 1:46 PM
facebook twitter linkedin


Among the stocks gearing up to report earnings tomorrow morning are Olive Garden parent Darden Restaurants, Inc. (NYSE:DRI), homebuilder KB Home (NYSE:KBH), and luxury jeweler Tiffany & Co. (NYSE:TIF). Below, we'll break down how options traders are positioning themselves, and how much speculators are willing to pay for their bets on DRI, KBH, and TIF.

  • DRI has been a technical juggernaut, with the shares up a staggering 32.3% year-over-year to hit $65.22. In fact, just yesterday the shares hit a record high of $65.75. Despite Darden Restaurants, Inc.'s positive price action, the brokerage bunch is divided on the equity, as 57% of covering analysts rate the stock a "hold" or worse. Additionally, DRI's consensus 12-month price target of $59.83 sits below current trading levels, leaving plenty of room for a round of bullish attention to provide tailwinds. Meanwhile, in the session immediately following its last four earnings reports, DRI has shed an average of 1.2%, but jumped 2.8% after report earnings last March. Near-term options are available for historically middling prices, as the stock's Schaeffer's Volatility Index (SVI) of 27% sits in the 55th percentile of its annual range.

  • KBH is up 16% since notching a two-year low of $11.76 on Jan. 22. Today, however, the shares are down about 2.6% at $13.64, ahead of tomorrow morning's fiscal first-quarter earnings release, swooning in sympathy with sector peer Lennar Corporation (NYSE:LEN). Sentiment in the options pits has been bullish, as KB Home's 10-day International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) call/put volume ratio of 17.90 sits in the 89th percentile of its annual range. Traders hoping for post-earnings upside have history against them -- in the session immediately following its last four earnings reports, KB Home has lost an average of 2.8%, including a massive 16.3% drop in January. Short-term options are in demand, as the equity's 30-day at-the-money (ATM) implied volatility (IV) of 42.2% is in the 92nd percentile of its annual range.

  • On the other hand, TIF has taken a nose dive, down 22.2% since achieving an all-time high of $110.60 on Nov. 25. What's more, the security touched an annual low of $82.75 just last week. Accordingly, bearish sentiment in the options pits has been ramping up, as Tiffany & Co.'s 10-day ISE/CBOE/PHLX put/call volume ratio of 1.37 stands higher than 78% of all equivalent readings taken over the past year. Looking elsewhere, in the session immediately following its last four earnings reports, TIF has increased an average of 3%. Today, TIF's 30-day ATM IV is 0.9% higher at 31.3%, in the 91st percentile of its annual range. At last look, TIF is 0.7% higher at $86.06.
 

If you are not making money with options, you aren’t buying options like this…

There is no options strategy that more perfectly approaches trading the fastest moving and most volatile stocks available in the marketplace than this one. In fact, there is no strategy that better utilizes put options for optimal returns and a real trading edge over other traders in the exact same market. New options traders fail out at an incredible rate without proper trade research, execution timing, and option picking. Capitalize on Schaeffer’s 100+ years of options trading excellence with the most coveted product launch in company history. Don't waste another second... join us right now before the next round of trades are released!

Common mistakes options traders make
 


 


 
Special Offers from Schaeffer's Trading Partners