Options Traders Eye Another Huge Earnings Move From Advance Auto Parts Stock

AAP stock has made big earnings moves over the past two quarters

Feb 20, 2018 at 1:29 PM
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After making huge post-earnings moves in the past two quarters, volatility expectations are surging on Advance Auto Parts, Inc. (NYSE:AAP) ahead of the company's earnings release tomorrow morning. Specifically, AAP jumped 16.3% in the session after earnings last quarter, though this followed a one-day post-earnings slide of 20.3% back in August. Implied volatility (IV) data suggests the options market is pricing in a 14.4% swing for tomorrow's session, and traders are displaying bearish sentiment ahead of the event.

For instance, the equity has a 10-day put/call volume ratio of 3.05 at the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), and this sits just 2 percentage points from a 12-month high. In other words, put buying has been unusually popular during the past two weeks. Further confirming this put bias is the Schaeffer's put/call open interest ratio (SOIR) of 1.23, which ranks in the 94th annual percentile, showing relatively heavy put open interest among options expiring within three months.

Sentiment has been bearish outside the options pits, too. After a sharp decline in the final months of 2017, short interest has picked back up, evidenced by a nearly 13% jump in the last two reporting periods. Based on the stock's average daily trading volume, it'd take these bears four sessions to cover their positions.

Advance Auto Parts has given traders a reason to be bearish. Over the past year, the shares have shed more than one-third of their value, and a recent breakout attempt was stopped short just shy of the 320-day moving average. More recently, AAP stock has been testing its 200-day moving average, and was last seen trading at $107.38.

But even with the heightened volatility expectations and erratic technical history, traders shouldn't necessarily run from an AAP options trade. That's because the security boasts a Schaeffer's Volatility Scorecard (SVS) of 92, showing a strong tendency for the stock to top options traders' volatility expectations over the past year.

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