Close to 90% of companies in the Russell 1000 index have disclosed their earnings for the current period, prompting a shift in focus to other influencing factors. Although several significant earnings reports are still pending, this analysis reviews the positioning of options traders ahead of the key results expected this week.
Highlighted in green are companies in our portfolio (long positions), and earnings-related movements exceeding 5%, as indicated by current options prices, are emphasized in yellow.
Tyson Foods (TSN), which has seen a nearly 25% decline year-to-date, exhibited above-average options activity on Friday. Notably, the November $40 puts were highly traded. Analyst sentiment tends to be optimistic, but TSN faces various challenges, including stagnant revenue and declining margins, leading to a higher trailing multiple despite substantial price declines.
Fisker (FSR), part of the struggling EV sector, faced negative options flows similar to the recent pattern observed in LCID. The company reported $470 million in cash as of June 30th, providing an estimated four to five quarters of runway at the current burn rate. Noteworthy options activity includes significant trading in January $3 puts, often associated with concerns about a company's ability to continue operations.
Home Depot (HD), a holding in our portfolio, trades at 18.5 times forward earnings estimates, presenting a discount compared to its historical valuation. However, concerns arise from high mortgage rates affecting sales to professionals and potential consumer finance pressures impacting big-ticket item purchases. Options trading activity, excluding expired contracts, predominantly involved puts, with a notable institutional sale of January $225 puts serving as a potential strategy to collect premium.
Target (TGT), another portfolio holding, has faced challenges in 2023 but trades at a substantial discount to its historical valuation. The options market reflects heightened uncertainty with a significant earnings-related implied move of 7.7%. An institutional trader bought 1,000 Target November $120 calls, positioning just below the 100-day moving average, suggesting a potential trade strategy.
Applied Materials (AMAT), set to report earnings after Thursday's close, witnessed notable activity in the November $157.50 calls. While earnings might not be the primary catalyst, the stock experienced a 5% increase following robust October revenues reported by Taiwan Semiconductor. Options premiums are considered reasonable, providing an alternative for those not willing to chase the stock after a significant rally.
In summary, the analysis highlights the positioning of options traders for key earnings reports, emphasizing notable movements and potential trade strategies in the context of each company's unique circumstances.
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