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 Investors have started to bet on big swings in other normally
volatile stocks of companies due to report results in coming days,
including Tesla Motors <TSLA.O>, Twitter Inc <TWTR.N> and Green
Mountain Coffee Roasters <GMCR.O>.
But there is still a lot of room for shocks in the next few weeks.
In many cases, the expectations for share volatility remains lower
than the actual moves in such hot stocks in previous quarters.
"It's been a stellar couple of weeks for volatility players after a
quiet 2013. The overall market has seen volatility grow
substantially," said Randy Frederick, director of trading and
derivatives at the Charles Schwab Center for Financial Research in
Austin, Texas.
Best Buy <BBY.N> started the trend for this quarter's reporting
period. After ending the year as the S&P 500's second best performer
behind only Netflix <NFLX.O>, shares stumbled 29 percent on January
16 after reporting unexpectedly weak holiday sales. Amazon <AMZN.O>
followed later with an 11 percent decline following its
disappointing results.
Even those that did well have surprised investors with the magnitude
of the moves — Netflix rose 16.5 percent on January 23 after its
results and Facebook Inc <FB.O> rose 14.1 percent on January 30
following earnings.
Reflecting such caution, implied volatility for stocks of
high-profile companies due to report in the next two weeks has risen
in the last few days.
"We've been seeing a lot of movements this season and people might
be on the edge and inclined to sell off more sharply. It's probably
a wise idea to hedge a little more," said Rick Meckler, president of
investment firm LibertyView Capital Management in Jersey City, New
Jersey.
Expectations for Green Mountain Coffee Roasters is for a 15 percent
move in shares post-earnings, but that's less than the average move
of 25 percent in the past eight quarters, according to Goldman Sachs
data.
The implied move on Tesla Motors <TSLA.O> options is about $8.40,
about 3 percent up or down, as the luxury electric auto maker is due
to report its earnings later this month. Over the past eight
quarters, Tesla's average move has been 10 percent.
Other notable companies in the social media and Internet space,
including Groupon, Expedia Inc <EXPE.O> and Yelp Inc <YELP.N> are
currently pricing in post-earnings moves about on a par with recent
activity, according to Goldman.
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While some stock investors may be thrown for a loop, the
larger-than-expected swings have been great for options traders who
bet on volatility, no matter whether the stock goes up or down.
TWITTER'S FIRST EARNINGS DANCE
Social media play Twitter Inc <TWTR.O>, which went public with much
fanfare in November, has some investors betting on more volatility.
Demand for short-term options contracts, mainly used to react to
events like earnings, has soared ahead of its results after the bell
on Wednesday.
In its short life as a public company Twitter has already seen 17
trading sessions where it gained or lost more than 5 percent.
The expected post-earnings move is currently about $9.70, or about
14.5 percent up or down, an expectation that has been creeping up in
the last two weeks.
"The fear of the unknown is particularly high for stocks of
companies with no or a limited track record because you can't really
draw a comparison to their peers or history. It's harder to have a
view on how earnings will come out," said JJ Kinahan, chief
strategist at TD Ameritrade.
Adding to volatility, short interest in Twitter surged to 33 million
shares in January, more than 10 percent of the stock's available
float.
Some bold bets were seen in the options market with traders buying
and selling out-of-the-money strikes — options contracts with prices
far away from the current price.
Top open interest positions in Twitter options ranged from $85
weekly strikes that expire on Friday, along with $47
out-of-the-money puts that expire on Feb 14. Even the most actively
traded near-term strikes are well out of the money — February $75
and March $75 calls. The stock would need to rise about 13 percent
from its close at $66.32 on Tuesday for those options to be
profitable.
(Reporting by Angela Moon; editing by
Martin Howell and Grant McCool)
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