The stocks expected to see huge earnings moves
Alex Rosenberg | @CNBCAlex
CNBC.com
As earnings season approaches, some big names could be unusually active.
Screening for mega-cap names with high implied earnings moves versus average moves, Goldman Sachs’ options research team found that JPMorgan, 3M and Intel are expected to move much more than history might indicate.
Implied moves on earnings are determined by looking at options prices to see how much traders are willing to pay (or receive) for exposure to potential moves, up and down, around earnings.
Goldman’s team then compared those implied moves to actual historical moves to see where an especially large move is being priced into the options.
Among mega-cap equities, JPMorgan is the standout, with options traders expecting a move 5.9 times greater than its average move over the last eight quarters. But that’s not because traders are expecting the stock to be rocked; it’s just because the median move over the last eight quarters rounds to 0 percent, compared to the implied move this quarter of 3 percent.
It’s a similar story for 3M, which has an implied move of 3 percent, compared with an average move of 1 percent.
The story is a bit more interesting for Intel, which has an implied move of 7 percent, compared with a median move of 2 percent.
It’s been a tough year for Intel, which reports earnings on Tuesday. The stock is down 14 percent in 2015, and was hit hard in March when it cut its revenue guidance for the first quarter. The actual numbers, then, are expected to move the stock big-time.
Of course, it isn’t particularly unusual for an implied move to exceed the average historical move. If a trader simply buys a call option or a put option, their loss is limited to the options premium laid out, but their potential profits are much larger (in this case, because the company could report blowout earnings or several disappointing numbers). Thus, the implied move is a sort of average of all the possible moves—including very large ones.
Still, especially large divergences between the implied move and the historical moves can be telling.
For Andrew Keene, an options trader with Keene on the Market, the divergences that Goldman points may indicate stocks where the options are overpriced.
“I want to take advantage of the fact that the implied movement in these three particular stocks is very high compared to how they historically have moved over the last eight quarters,” Keene said.
In other words, Keene would recommend being a seller, rather than buyer, of options in these names—particularly 3M, which has only seen a post-earnings move as large as the implied 3.3 percent once over the past two years.
On the other side of the spectrum, Amazon is the mega-cap pricing into the lowest implied move compared to its recent history. Over the last eight quarters, a move of 10 percent is the norm, but Amazon options are only pricing in a 9 percent move.
Today’s Inspiration
Positive Belief
by Joyce Meyer – posted April 09, 2015
[For Abraham, human reason for] hope being gone, hoped in faith that he should become the father of many nations, as he had been promised, so [numberless] shall your descendants be. He did not weaken in faith when he considered the [utter] impotence of his own body, which was as good as dead because he was about a hundred years old, or [when he considered] the barrenness of Sarah [deadened] womb. No unbelief or distrust made him waver (doubtingly question) concerning the promise of God, but he grew strong and was empowered by faith as he gave praise and glory to God, fully satisfied and assured that God was able and mighty to keep His word and to do what He had promised. Romans 4:18-21
The story of Abraham amazes me no matter how many times I read it. It’s not just the birth of a son when he was a hundred years old. That’s a miracle. But just as amazing is the information that he waited twenty-five years for the fulfillment of the promise. He was seventy-five when God promised him a son.
I wonder how many of us would believe God and live in expectation for twenty-five years. Most of us probably would have said, “I didn’t really hear from God.” “Oh, I guess maybe God didn’t really mean that.” Or, “I need to go somewhere else to get a fresh word from the Lord.”
Sarah and Abraham did have problems holding on to that promise. As a means of attempting to get what they wanted, they had Sarah’s handmaiden, Hagar, bear him a son, but God let him know that wasn’t the way it was going to be. I believe their actions delayed the arrival of God’s promised child.
In our impatience, we often take matters into our own hands. I say we get “bright ideas” plans of our own, which we hope God will bless. These plans open the door for confusion and chaos. Then their results must be dealt with, which often delays our miracle.