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What About Earnings?

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Stocks in this article: FDXNKE

While much of the focus this week is on the Federal Reserve as it kicks off a two-day meeting today, a number of important companies are due to report earnings this week as well. Results from FedEx (FDX), Nike (NKE), and Accenture (ACN) could provide an important preview of what's to come when the floodgates open on fourth quarter earnings a month from now. In addition, several software names which are also due to release results this week, saw an uptick in options activity Monday.

Tech bellwether Oracle (ORCL) reports tomorrow afternoon. The stock was off $0.76 to $33.54 yesterday ahead of the results and options volume on the software giant was 3X the daily average. 68,000 puts and 20,000 calls traded on the ticker. The top trades were part of a spread, in which the investor was selling 17,650 Dec 34 puts on the stock at $0.96 and buying 17,650 Dec 33 puts at $0.54. The Dec 33 34 put spread, at $0.43, rolls down an existing positions in the Dec 34 puts bought for $0.45 on Dec 2. By monetizing the gain in that contract, while opening a new position in Dec 33 puts, the investor appears to be positioning for further downside in Oracle through earnings. The stock was down last week on negative analyst commentary and the mean move after earnings is nearly 4%, a bit below the Dec 21 ATM straddle price.

Tibco Software (TIBX) reports results Thursday afternoon and options volume on the stock yesterday was 4.5X the daily average, driven by an opening put spread. The investor bought the Feb 20 23 put spread on TIBX for $0.95, 3,000X. The stock was flat at $24 on the day and the new position seems to be targeting a move to $20 by mid-February.

Lastly, Red Hat (RHT) was up $0.77 to $47.54 and options volume on the stock was 4X the daily average Monday. In contrast to ORCL and TIBX, the flow was bullish, rather than bearish. An investor was paying $0.72 for the Dec 50 55 call spread on the business software-maker, 1,250X. The spread was opened 3,500X on the day and seems to be expressing the view that RHT could rally to the mid $50s by the expiration. The company is due to report earnings Thursday afternoon and the December call spread will have one day of life remaining after the results are announced.

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At the time of publication, Henry Schwartz held no positions in the stocks or issues mentioned.


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