Pre-Earnings Options Volume Explodes as Hertz Stock Implodes

Hertz Global Holdings will report earnings after the market closes this Thursday, Nov. 9

Nov 7, 2017 at 3:16 PM
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Shares of Hertz Global Holdings Inc (NYSE:HTZ) are getting smacked today, after sector peer TrueCar (TRUE) reported its first revenue miss in almost two years and gave dismal sales guidance. At last check, HTZ stock was down 19.5% to trade at $20.35, earlier touching the round $20 mark for the first time since early September. And ahead of the car rental company's own turn in the earnings confessional after Thursday's close, options volume is soaring -- with one trader lowering the bullish bar for the security.

Most recently, 19,765 calls and 10,769 puts have changed hands on Hertz stock -- more than six times what's typically seen at this point in the session, and total options volume pacing in the 98th annual percentile. The November 22.50 and 25 calls have seen the heaviest action, due in part to one trader seemingly rolling her long calls down.

More broadly speaking, options traders have been quick to initiate long calls relative to puts in recent weeks. At the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), speculative players have bought to open 10,647 calls over the last two weeks, compared to 1,326 puts. The resultant call/put volume ratio of 8.03 ranks higher than 99% of all comparable readings taken in the past year.

Diving deeper, the November 28 and 30 calls have seen the largest increases in open interest during this time frame, with roughly 7,950 contracts collectively added. Data from the major options exchanges confirms mostly buy-to-open activity here, meaning options traders bet on a big breakout for HTZ shares by front-month expiration at next Friday's close.

Considering Hertz shares had nearly tripled since their late June lows heading into today's trading, some of this recent options activity may have been at the hands of vanilla call buyers. However, with a lofty 28.3% of the stock's float sold short, it's also possible these bearish bettors were initiating options hedges against any post-earnings upside risk.

Regardless of the reason, it's not the most attractive time to buy premium on short-term options. In fact, the stock's Schaeffer's Volatility Index (SVI) of 119% ranks higher than 78% of similar readings taken in the past year, and its 30-day at-the-money implied volatility (ATM IV) of 96% sits in the 96th annual percentile. These two volatility indicators point to elevated expectations being priced into near-term premium.

Looking back over the past eight quarters, the stock has averaged a single-session post-earnings swing of 10.5%, regardless of direction, though the reaction has been negative in five of those instances. This time around, the options market is pricing in a 20% swing for HTZ stock in either direction, based on ATM IV data.


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