Option Bulls Blitz Vipshop Holdings Ltd ADR (VIPS) Ahead of Earnings

Vipshop Holdings Ltd - ADR will report earnings after tonight's close

by Karee Venema

Published on Nov 18, 2014 at 2:26 PM
Updated on Jun 24, 2020 at 10:16 AM

China-based online discount retailer Vipshop Holdings Ltd - ADR (NYSE:VIPS) will take its turn in the earnings confessional after tonight's close, and ahead of the scheduled event, the stock is down 1.3% to $23.68. Option players are paying no mind to today's dip, with calls crossing the tape at nearly four times the average intraday rate. The most active option is VIPS' November 24 call, where it appears a number of speculators are betting on a quick post-earnings bounce.

Specifically, 2,222 contracts have changed hands here -- the majority at the ask price, signaling buyer-driven activity. What's more, implied volatility has soared 12 percentage points, indicating new positions are being initiated.

Losses for today's call buyers are limited to the initial premium paid, should VIPS settle south of the strike at week's end, when front-month options expire. Gains, meanwhile, are theoretically unlimited north of breakeven at $24.74 (strike plus the volume-weighted average price of $0.74) -- a mark that sits just 6 cents away from the stock's all-time high of $24.80, tagged on Nov. 11.

Today's accelerated call activity is just more of the same toward a stock that's almost tripled in value year-to-date. At the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), for example, VIPS' 10-day call/put volume ratio of 1.97 ranks just 9 percentage points from an annual bullish peak.

Looking at the numbers, VIPS' post-earnings price action tends to favor bulls. In fact, over the past four quarters, the stock has averaged a gain of 10.9% in the session subsequent to reporting. This time around, the options market is projecting a roughly 9% move, but considering the November 23.75 put is pricing in higher implied volatility than the call (107.5% vs. 102.7%), it appears the action is expected to resolve to the downside.


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