3 Stocks Rewarding Bullish Options Traders with Earnings Upside

Momo Inc (ADR) (MOMO), Vodafone Group Plc (ADR) (VOD), and Akorn, Inc. (AKRX) are seemingly playing into call buyers' hands

May 17, 2016 at 11:03 AM
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Home Depot Inc (NYSE:HD) earnings are grabbing the headlines this morning, but other stocks are making post-earnings noise as well -- potentially rewarding options traders in the process. Social networking stock Momo Inc (ADR) (NASDAQ:MOMO), mobile communications expert Vodafone Group Plc (ADR) (NASDAQ:VOD), and biotech Akorn, Inc. (NASDAQ:AKRX) are all on the move after earnings. Let's see what the post-earnings price action for MOMO, VOD, and AKRX may mean for options traders. 

Although MOMO posted first-quarter earnings below analysts' expectations, the stock popped out of the gate as high as $12.56. The shares have since pared those gains, but are still sitting on a healthy lead of 2.3% at $12.29, after briefly testing negative territory. This up-and-down price action is nothing new for the shares, which were unable to maintain the momentum from their early April bull gap, leaving their year-to-date deficit at 23.3%. 

Options traders were still betting bullishly ahead of earnings, though, buying 1.30 call options for every put during the past two weeks at the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX). Going by open interest added during that time frame, the most popular option was the May 12.50 strike, and data from the major exchanges shows buy-to-open activity. This means traders are betting on MOMO topping $12.50 by front-month options expiration this Friday night.

VOD is up 1.7% at $33.30 following the company's positively received earnings release, extending its year-to-date lead to a modest 3.2%. Unfortunately, the stock's 320-day moving average is looming just overhead, a trendline that blocked VOD's breakout attempts in November and April. 

The shares may have done enough to reward call players, though. Nearly 1,800 calls were purchased at the ISE, CBOE, and PHLX during the past two weeks, compared to just 213 puts. The May 33 call saw the largest increase in open interest, and data from across the major exchanges confirms buy-to-open activity at the strike, as traders smartly bet on a move atop $33 by week's end for VOD.  

AKRX has been the most impressive of these three stocks today, gaining almost 7% at $29.74, after the company matched Wall Street's earnings expectations and reaffirmed its full-year outlook. The stock's 200-day moving average could be an issue, though, as today's rally was cut short right at this level. 

AKRX's 10-day call/put volume ratio at the ISE, CBOE, and PHLX stands at 2.78. The May and June 30 strikes added more open interest than any other call options during the past two weeks, and traders bought to open positions at each, betting the shares would topple the round-number $30 level. Notably, AKRX's intraday high currently stands at $30.39. 

It's worth mentioning that Momo Inc (ADR) (NASDAQ:MOMO) and Akorn, Inc. (NASDAQ:AKRX) sport elevated short-interest ratios of 8.20 and 7.80, respectively, meaning short sellers may have been hedging with call options ahead of earnings. And while Vodafone Group Plc (ADR) (NASDAQ:VOD) has a short-interest ratio of just 2.50, short interest grew by over 83% in the last two reporting periods, so the recent call purchases may have also been protective in nature.

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