Bears Bombard EDU Stock Ahead of Earnings

Sentiment surrounding the stock has been optimistic

Lillian Currens
Apr 20, 2020 at 12:29 PM
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The shares of China-based educational services specialist New Oriental Education & Tech Grp (NYSE:EDU) are down 2.2% at $110.01, ahead of the firm's fiscal third-quarter earnings report, due out before the open tomorrow, April 21. Looking back, EDU has been in sell-off mode since running out of steam at its 40-day moving average, though the $110 level is providing recent support, with the 320-day moving average also acting as a floor in during the past few months. 

EDU Apr 20

EDU's typically quiet options pits are bustling with bearish activity ahead of its earnings event, with 2,712 puts across the tape so far -- 12 times the intraday average, and running in the 100th percentile of its annual range -- compared to just 343 calls. The May 95 put is the most popular, with positions being opened there. This means these traders are speculating on much more downside for the underlying stock before this contract expires on Friday, May 15. 

Typically, options bulls rule the roost. EDU sports a 10-day call/put volume ratio of 2.38 at the International Securities Exchange (ISE), Cboe Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX). This ratio sits in the 86th percentile of its annual range, suggesting a healthier appetite for long calls than usual. 

Analysts are optimistic on the security, too. All five in coverage consider EDU a "strong buy," and its consensus 12-month target price of $147.42 is a 33.8% premium to current levels. 

Looking back at EDU's last eight quarterly reports, the security ended half of the following trading sessions lower, including a 16.1% dip in October 2018. EDU has averaged a post-earnings swing of 7.2% during the last two years. This time around, the options pits are pricing in a 14.6% next-day move. 


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