Call Traders Flock to This Software Stock Before Earnings

CDNS is slated to report earnings after the close today

Managing Editor
Apr 20, 2020 at 1:51 PM
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Shares of Cadence Design Systems Inc (NASDAQ:CDNS) are moving slightly lower this afternoon, down 0.2% at $78.47, at last check. The options market is likely gearing up for the software name's first-quarter earnings, which are slated for today, after the market close. Below we will take a look at how CDNS has been faring on the charts, and see what the options market has priced in for the shares' post-earnings moves.

CDNS has been on an impressive climb higher since touching a multi-year bottom of $51.39 on March 18. In fact, the equity surged to a fresh record high of $80.46 on Friday, and now sports a 13% year-to-date gain. Guiding the shares has been the 10-day moving average, of which, the security closed above on March 24.

CDNS Chart April 20

Looking at Cadence System's earnings history, the stock has closed higher the day after reporting in seven of the last eight quarters, including a 15.4% surge in October 2018. Over this time frame, the stock has averaged a post-earnings swing of 5.6%, regardless of direction. This time around, the options market is pricing in a higher-than-usual, 4.2% swing for Tuesday's trading.

Digging deeper, calls have been a favorite among options traders. This is per CDNS stock's 10-day call/put volume ratio of 6.69 at the International Securities Exchange (ISE), Cboe Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX). This ratio ranks in the lofty 72nd annual percentile, indicating calls have been purchased over puts at a faster-than-usual clip.

Echoing this, the equity's Schaeffer's put/call open interest ratio (SOIR) of 0.46, sits lower than all but 18% of other readings from the past year. This suggests short-term option players have rarely been more call-biased in the past 12 months. What's more, peak open interest currently sits at the May 80 call. 

 

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