Skeptics Sell the Shopify Earnings Beat

Traders are selling the news after SHOP topped earnings expectations

Feb 15, 2018 at 9:44 AM
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Shares of Shopify Inc (NYSE:SHOP) are in focus this morning as traders react to the e-commerce platform's fourth-quarter earnings report. SHOP announced a net loss of 3 cents per share, with adjusted earnings arriving at 15 cents per share, while revenue jumped 71% to $222.8 million.

The results topped analysts' expectations, but SHOP was trading down more than 2% ahead of the market open this morning, hinting at a "sell on the news" reaction. SHOP stock rallied hard heading into the report -- up 8% on Wednesday, and setting a new record high of $173.16 in the process. Following yesterday's outsized pre-earnings gains, in fact, SHOP's 14-day Relative Strength Index (RSI) arrived at 69.64 -- just short of "official" overbought territory.

After a quick pop into positive territory out of the gate, the shares are now down 3.1% at $133.52. With SHOP having gained about 35% year-to-date through Wednesday's close, the stock has room to pull back before meeting up with short-term support at its 20-day and 40-day moving averages. The shares haven't closed a session below this trendline duo since the end of 2017.

Heading into this morning's earnings announcement, speculative players flooded SHOP's options pits on Wednesday. The day's option volume of about 25,000 contracts roughly quadrupled the norm, and the biggest overnight open interest increase occurred at the soon-to-expire February 130 put. Over 1,000 contracts were opened here, with evidence indicating a skew toward buying activity.

By purchasing SHOP's February 130 put, traders may have been speculating on a post-earnings sell-off -- but it's also quite likely that Shopify investors were purchasing the short-term puts as a form of "options insurance," allowing them to lock in some as-yet unrealized paper profits even in the case of a post-event plunge by the stock.


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