EXPE Q4 Earnings Cheat Sheet & Vol SnapShot

by Kristen February 6, 2014 3:20 pm • Commentary

Event: EXPE reports Q4 earnings today after the close. The implied one day move in the options market is about 14% (the Feb07 weekly at the money straddle (call plus the put) is offered at ~$9.30, so if you bought that you would need about 14% move by tomorrow’s close to break-even).   The 4 quarter average one day move is about 14.5%.

Sentiment: Wall Street analysts are fairly neutral on the stock with 10 buys, 19 holds and no sells and an average price target of $70 or about 5% higher than the current stock price. Stock is down about 6% year-to-date. Stock was trading just about here in the mid-60’s last year at this time, reached a low in the mid-40’s in July and August and traded as high as 72 in mid-January. Short interest has been rising and sits at about 11.5% of the float.  

Option Open Interest: The call/put ratio among all outstanding open interest is around 1.3 to 1. There isn’t a lot of open interest in the Feb07 weekly options. In the Feb monthlies the largest lines of open interest are the Feb 60 puts and Feb 80 calls with just about 10K each.

Price Action/Technicals: Stock recently dipped below the 50 dma for the first time since an earnings gap up at the end of October. Currently it is trading just below the 50 dma. In October stock gapped from $49 to $59 and has not traded below that since.  $60 should serve as a decent near term support level.

[caption id="attachment_35968" align="aligncenter" width="589"]EXPE 1yr chart from Bloomberg EXPE 1yr chart from Bloomberg[/caption]

Volatility: At close to 76, IV30 is trading at it’s highest point in at least 7 earnings cycles. There has been a lot of option volume today with the largest trade a seller of the Feb 65 puts at 87 vol to buy the Mar 65 puts for 49 vol 3000 times.

[caption id="attachment_35960" align="alignnone" width="709"]expevol from LiveVol Pro[/caption]

Our View:  This chart is filled with gaps and tends to be very extremely volatile on earnings with 3 moves of 20% or greater in the last 8 qtrs and 6 moves of 10% or higher during that same period.  Long premium directional strategies leave very little margin for error.