Agricultural issue Archer Daniels Midland Company (NYSE:ADM) is set to report earnings tomorrow morning, and the company could reach an agreement to buy Bunge (BG) as early as this week, according to reports. Below we will take a closer look at how the stock has been faring on the charts, and what the options market is pricing in for its post-earnings action.
Archer Daniels Midland stock rallied on Jan. 22, as reports of a Bunge takeover surfaced. The stock subsequently peaked at a three-month high north of $43.50 on Jan. 26, but has since dropped in step with the broader equities market. At last check, the farming supplier was down 1.2% to trade at $40.94, after initially ticking higher.
Looking at its earnings history, ADM has not fared well, ending higher the day after earnings in just three of the past eight quarters. Further, the shares have averaged a post-earnings swing of 4.8% in either direction in the session after reporting, looking back two years. This time around, the options market is pricing in a larger-than-usual 7.4% move for Tuesday's trading, per at-the-money implied volatility (IV) data.
However, premium buyers have been consistently disappointed over the past year, per ADM's Schaeffer's Volatility Scorecard (SVS) of 7. This means the shares have tended to make smaller-than-anticipated moves in the previous 12 months, relative to what the options market had priced in.
Looking toward sentiment data, Archer Daniel Midland stock's Schaeffer's put/call open interest ratio (SOIR) of 0.54 is docked below 83% of comparable readings taken in the past year. This low reading suggests that short-term speculators have rarely been more call-skewed toward the stock during the past 12 months.
Today, though, ADM puts are crossing the tape at twice the average intraday pace, with more than 5,000 contracts exchanged. Garnering the most attention are the weekly 2/9 41.50- and 42-strike puts. "Vanilla" buyers of the puts expect the shares to extend their retreat south of the strikes through the end of the week.