Trade Of The Week

 

Using the OptionsHawk Database After Earnings

Date: August 1, 2017

So, your favorite stock got smoked. It happens. Perhaps it was a good quarter but expectations were too high or maybe the quarter was… bad. That happens too.

Trading options around earnings is noisy. Before a company reports, you have long-term holders hedging, speculators guessing, and non-directional strategists taking advantage of the short-term changes in structure. A name like Apple (AAPL) can trade nearly 600,000 options the day before earnings and over a million the day after. Anyone who thinks they can pull meaningful, actionable information out of the weekly or front-month flow in those names is wrong.

One edge you can have is knowing how the sizable, long-term options are positioned in a name when it falls. At OptionsHawk, we keep an active database of daily options flow which traders we work with can access and search while doing their own research. The Optionshawk Notable Trades Database is a searchable archive of the nearly 150-200 notable trades per day which we track in our trading hub, by far the most comprehensive, accurate, and extensive resource around. Joe (@OptionsHawk) and I check each trade to determine accuracy and it becomes a very helpful tool during busy times like now when 40-50 notable names are reporting each day to be able to quickly flip around and check out where the big, meaningful trades are positioned.

Last quarter, I had my eyes on Advanced Micro (AMD) into the report. I liked the fundamental story and it had been trading well since November, consolidating in a $2.50 range for several weeks. AMD had a good recent history of results, higher three of the last four and by double-digits each time.

Joe had even mentioned some of the action on Twitter earlier as it happened but snapshot of the action from the database below as well.

AMD got crushed down 24% on the day. Fortunately, the long-term positioning was favorable for a bounce. Looking up AMD in the database showed sizable put sales in months as far our as October and January showing traders willing to own millions in shares. AMD also had a lot of call buying in January calls and repeat buyers building up multi-million dollar positions. AMD traded down to the 200-MA giving me a nice spot to lean against and – knowing the flow – a nice reward/risk play on a rebound. AMD shares climbed as much as 50% since that day.

Every quarter we see this happen. Some are more dramatic than others: In January CSX sold off on earnings but we saw March calls bought hand over fist ahead of the report and then again on the day of earnings, adding into weakness. Of course, on 1/18 the news about Hunter Harrison came out and shares jumped higher by 20%. On 4/28, Synchrony (SYF) traded down by over 15% following earnings but had over 25,000 January 2018 $35/$28 bull risk reversals in open interest which gave a big vote of confidence to support holding. We also saw buyers active on the day into weakness.

We also saw big bull risk reversals bought on the day. We wrote on that day:

Shares have held up well and those risk reversals could be put on for a credit with support holding well and shares higher by more than 20% from the May post-earnings lows to recent highs.

You’ve made it this far, so an example from this earnings season.

Square (SQ) reported a blow-out quarter this week but shares traded down 4.7% on the session, just above the rising 50-MA at $24.54. The firm delivered strong topline growth with margin expansion with SC loan volume up 68% Y/Y. GPV was up 32% and seeing more engagement from larger sellers. The $9.33B company trades 5.2X sales and 10.5X cash. SQ is expecting 25.8% and 26.5% Y/Y revenue growth in 2017 and 2018 after four straight years of 30%+ growth. Needham was out positive today noting that long-term the company has multiple levers in their payments eco-system for growth with runway for both ancillary products, broadening of merchant base, International growth, and vertical specialization.

Looking at the OptionsHawk Database snapshot, we see sizable bullish positions sitting in open interest with $1M positions across the December $19, $20, $23, and $25 calls. SQ also has September $24 calls and January 2018 $30 calls in open interest, the latter a more than $1.9M position.

Trade to Consider: Long the SQ December $25 Calls for $3 or Better

 

The OptionsHawk Notable Trade Database is available to traders we work with daily in the Trading Hub. To check out our MAX plan, click here.

 

Previous Trades of the Week:

S&P Global (SPGI) Bulls Build into Technical Strength (7/13/17)

Nektar (NKTR) Bulls Position in Relative Strength Biotech (7/4/17)

Lamb Weston (LW) Bulls (6/23/17)

Blackstone (BX) Spreads Position for Summer Rally (5-22-17)

Moody’s (MCO) Call Buyer Holds for Key Technical Breakout (4-3-17)

Unusual Cott Corp (COT) Bulls Position for Summer Rebound (3-13-17)

J2 Global (JCOM) Bullish OI (3-7-17)

Constellation (STZ) Bullish Spreads Position for Rebound in 2017 (2-28-17)

Cardtronics (CATM) Short Puts Look for Recent Lows to Hold (2-20-17)

T-Mobile (TMUS) Call Spreads Position for Strong 1H (2-13-17)

Pinnacle Foods (PF) Bulls Sit in Open Interest Amid Technical Strength (1-31-17)

Scientific Games (SGMS) Bulls Look for Continued Strength in Small-Cap (1-23-17)

Zayo Group (ZAYO) Open Interest Positioned Bullish into Recent Pullback (1-16-17)

Honeywell (HON) Bulls Position for Technical Strength, Potential M&A in 2017 (1-9-17)

Mylan (MYL) Bulls Position for 2017 Turnaround (1-2-17)

Adobe (ADBE) Bulls Buy into 200-MA (12-5-17)

Oceaneering (OII) Put Sales See Floor in Energy Stock (11-21-16)

Intel (INTC) Bulls (11-14-16)

Mobileye (MBLY) Bulls (11-7-16)

Sherwin Williams (SHW) Bulls (10-31-16)

Palo Alto Networks (PANW) Call Spreads (10-24-16)

Post Holdings (POST) Bulls (10-17-16)

Marathon Petrol (MPC) Sell-Off Attracts Long-Term Bull (10-10-16)

Teva (TEVA) Bulls Building Contrarian Positions (10-3-16)

Biogen (BIIB) Bulls (9-19-16)

Prudential (PRU) Bulls (9-12-16)

Lionsgate (LGF) Bulls (9-5-16)

Google (GOOGL) Call Spreads (8-29-16)

Anadarko (APC) Bulls (8-15-16)

CIT Group (CIT) Bull Spreads (8-1-16)

Ball Corp (BLL) Bull Spreads (7-25-16)

Imperva (IMPV) Bulls (7-18-16)

Chipotle Mexican Grill (CMG) 3 Way Spreads (7-11-16)

WhiteWave (WWAV) Bulls Position for Summer Rally (6-27-26)

Amazon (AMZN) Call Fly (6-20-16)

BP PLC (BP) Bulls (6-13-16)

Visa (V) Bulls (5-30-16)

ActiVision (ATVI) Calls (5-23-16)

Eagle Pharma (EGRX) Calls (5-16-16)

ACADIA (ACAD) Bullish Spread (5-9-16)

Kate Spade (KATE) Call Spread (5-2-16)

WestRock (WRK) Calls (4-26-16)

Shire (SHPG) Risk Reversals (3-21-16)

PACCAR (PCAR) Puts (3-7-16)

Goldman Sachs (GS) Bull Put Spreads (2-29-16)

SS&C Tech (SSNC) Call Spreads (2-22-16)

Mead Johnson (MJN) Call Buying (2-15-16)

Lyondell (LYB) Puts (2-8-16)

MicroChip Puts (1-26-16)

Wal-Mart (WMT) Calls (1-18-15)

CenterPoint Enegy (CNP) Calls (1-11-16)

Sarepta (SRPT) Bulls (12-21-15)

UPS Call Spread (12-14-15)

Ross Stores (ROST) Puts (11-9-15)

Baxter (BAX) Bullish Positioning (11-2-15)

Comerica (CMA) Call Options (10-29-15)

Allergan (AGN) Bullish Positioning (10-19-15)

Starz (STRZA) Covered Risk Reversals (9-28-15)

Nu-Skin (NUS) Put Spreads (9-21-15)

Edgewell Personal Care Calls (9-13-15)

Vodafone (VOD) Risk Reversals (9-7-15)

Incyte (INCY) Call Spreads (8-31-15)

AutoDesk (ADSK) Risk Reversals (8-17-15)

McDonald’s (MCD) Call Spreads (8-10-15)

Macy’s (M) Risk Reversal (8-3-15)

Assured Guaranty Call Spreads (7-27-15)

Aer-Cap Call Buyers (7-20-15)

Workday (WDAY) December Call Spreads (7-13-15)

Halozyme Volatility Spread (1-18-13)

National Oilwell Varco (NOV) 3 Way Bull Spread (1-11-13)

Leverage Spread Positions for AIG (AIG) Rally (1-4-13)

China (FXI) Bulls Position for Rally (10-10-12)

Intel (INTC) Mixed Action into Earnings (7-6-12)

WellPoint (WLP) Bullish Calendar Spread (5-31-12)

Medivation (MDVN) Calendar Spread (4-10-12)

Tivo (TIVO) Bullish Spreads (3-28-12)

Gold Corp (GG) Call Fly Spread (3-15-12)

Trip Advisor (TRIP) Strangle Sale (3-1-12)

DirecTV (DTV) January 2013 3 Way Bullish Spread (2-21-12)

Dick’s Sporting Goods (DKS) Bear Put Spreads (2-16-12)

Vale SA (VALE) Bullish Risk Reversal (2-9-12)

Ford (F) Bullish Straddle Sale, Call Buy (2-3-12)

Kodiak Oil & Gas (KOG) January 2013 Call Spread (January 26th, 2012)

US Steel (X) April Covered Bullish Ratio Risk Reversal (January 20th, 2012)

Treasury (TLT) March 117/113/109 Butterfly Put Spread (January 13th, 2012)

Oracle (ORCL) Ratio Call Spread 2X3 (January 6th, 2012)

Yahoo (YHOO) February $16/$19 Ratio Call Spread, December 23, 2011

EBAY Ratio Call 2X3 Spread, December 2, 2011