By Karee Venema / October 25, 2017 / www.schaeffersresearch.com /
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It's been a busy week for corporate earnings reports, with Wall Street digesting the latest results from Advanced Micro Devices (AMD) and Chipotle Mexican Grill (CMG), among others. There's still plenty of high-profile names on the docket, too, with tech heavyweights Intel Corporation (NASDAQ:INTC), Microsoft Corporation (NASDAQ:MSFT), and Western Digital Corp (NASDAQ:WDC) all set to report after tomorrow's close. Here's a closer look at how INTC, MSFT, and WDC are performing ahead of earnings, and how options traders are placing their pre-earnings bets.
Intel Options Trader Gets Defensive Ahead of Earnings
Intel shares hit a nearly 17-year high in early trading, but were last seen trading down 0.6% at $40.69. The Dow stock has been rallying hard off its late-August lows near $34.50 -- up almost 18% -- and with a 14-day Relative Strength Index (RSI) of 73.74 perched in overbought territory, a near-term pullback may have been in the cards.
Over the past eight quarters, it's been a coin toss as to whether Intel stock's earnings reactions have been positive or negative, though the most recent quarter resulted in a move to the upside for the shares in the subsequent session. On average, INTC has moved 3.5% in the day after the company reports, regardless of direction. This time around, the options market is pricing in a bigger 5.1% swing, per at-the-money implied volatility data.
Today, one options trader appears to be bracing for stiffer short-term headwinds for Intel. Around 10 a.m. ET, 50,000 November 39 puts -- almost 59% of the day's total put volume so far -- were bought to open for an initial cash outlay of $2.05 million (number of contracts * $0.41 premium paid * 100 shares per contract).
This is the most the trader stands to lose, should the puts expire out of the money at the close on Friday, Nov. 17. Profit, meanwhile, will accumulate on a move south of breakeven at $38.59 (strike less premium paid). Given the stock's impressive run of late, this could be indicative of an Intel shareholder initiating an
options hedge ahead of earnings -- a theory echoed by
Trade-Alert.
Pre-Earnings Put Volume Pops on Microsoft Stock
Microsoft stock has put in a strong performance in 2017, up 26.3%, and fresh off Monday's
record high of $79.34 on Monday. This rally brought the security's 14-day RSI to 79 last night -- well into overbought territory -- which, along with broad-market headwinds, has MSFT down 0.5% today at $156.39.
The stock could be headed higher by week's end, though, if history is any guide. In the past eight quarters, MSFT has closed higher in the session following the firm's earnings report six times, averaging a gain of 4.7%. For Friday's trading, the options market is pricing in a single-session post-earnings swing of 5.4%, regardless of direction.
In today's trading, 71,520 puts have changed hands on Microsoft, double what's typically seen at this point in the day. The weekly 11/3 options series has received notable attention, due to a three-way spread involving the 73.50- and 76-strike puts, as well as the 82-strike call. While it's not clear exactly what's going on here, it looks as if a trader sold to open 15,000 weekly 11/3 73.50-strike puts and 6,500 82-strike calls to fund the purchase of 76-strike puts.
Western Digital Options are Pricing in a Big Post-Earnings Move
After notching a two-year high of $95.77 on July 21, Western Digital stock pulled back to its rising 200-day moving average and bounced. This trendline reemerged as support earlier this month, too, when the security retreated amid
Toshiba backlash, with the shares last seen trading at $87.67 -- up 29% year-to-date.
The stock has a mixed history of post-earnings performances, finishing higher in the session subsequent to the company's results four of the past eight quarters. On average, WDC shares have moved 5.9% the next day, regardless of direction -- less than the 8.1% swing the options market is pricing in this time around.
Options volume is slightly accelerated today, with the 15,500 contracts traded -- roughly 1.2 times the expected intraday rate. While the bulk of the action at the most active options appears to be tied to stock, vanilla options traders may be purchasing new positions at the weekly 11/10 87.50-strike call. If this is the case, the goal is for Western Digital shares to be sitting north of the strike when the options expire at the close on Friday, Nov. 10.