Options Bulls Flock to Conduent Stock Ahead of Earnings

CNDT's fourth-quarter earnings are slated for release before tomorrow's open

Deputy Editor
Feb 19, 2019 at 3:02 PM
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The shares of Conduent Inc (NYSE:CNDT) are soaring today, after the IT company came to a settlement agreement with Texas regarding two previous contracts supporting the state's Medicaid program. As part of the settlement, Conduent will pay the state $235.9 million over a three-year period, and CEO Ashok Vemuri said "we have sufficient liquidity to address" the issue. This news comes ahead of the firm's fourth-quarter earnings, slated for release before the market opens this Wednesday, Feb. 20. 

Conduent stock suffered a nearly 30% one-day drop on Nov. 7 -- brought about by a third-quarter earnings miss -- and subsequently touched an all-time-low of $9.68 on Dec. 26. Since bottoming out, though, the stock has rebounded more than 50% atop its 10-day trendline, and today is pacing for its highest close since the aforementioned bear gap. At last check, CNDT stock is up 7.9% at $14.66. 

Ahead of tomorrow's earnings, CNDT calls are trading at four times the normal intraday volume, with 635 contracts changing hands so far. The March 15 call is the most popular, and it appears some of these contracts are being bought to open. By purchasing the calls to open, the buyers expect the shares to rally atop $15 by the close on Friday, March 15, when the options expire.

Regarding expectations among options traders, Conduent options are pricing in a 12.5% swing for tomorrow's session, compared to the security's average single-day post-earnings move of 7.8% during the last eight quarters. Besides the aforementioned drop last November, the shares haven't managed another move of this magnitude in the past two years. What's more, the majority of post-earnings reactions have been positive -- with an 11.7% single-day gain this time last year. 

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