TWTR and IRBT have exceeded options traders' volatility expectations
Earnings season is heating up, with FAANG stock Netflix (NFLX) soaring after the streaming giant reported solid subscriber growth. With that in mind, we decided to hunt for some options-trading ideas for premium buyers this earnings season. Specifically, we identified stocks that have tended to make outsized moves on the charts in the past year, relative to what the options market has priced in, then singled out companies with earnings expected in the next couple of weeks. On the list: social media concern Twitter Inc (NYSE:TWTR) and Roomba maker iRobot Corporation (NASDAQ:IRBT).
Below is a list of 25 stocks complied by Schaeffer's Senior Quantitative Analyst Rocky White that trade at least one million shares per day and have closed at $7 or more. These stocks have high Schaeffer's Volatility Scorecard (SVS) readings, meaning they have tended to exceed options traders' volatility expectations in the past year -- a boon for would-be premium buyers. Additionally, stocks with a low Schaeffer's Volatility Index (SVI) percentile rank have near-term options that are pricing in relatively low volatility expectations at the moment. All of the companies listed below are expected to report earnings before May 2.
TWTR Calls Could Be a Steal
Twitter is expected to report earnings next Wednesday, April 25. The security rallied after the social media concern's last two earnings report, averaging a one-day gain of 15.4%. Over the past eight quarters, TWTR has moved an average of 12.1% the day after earnings, regardless of direction.
Today, TWTR shares have skyrocketed 10.7% to trade at $31.63 -- set for its best day since Feb. 8 -- after Morgan Stanley upgraded the security to "equal weight" from "underweight." The analyst also upped TWTR's price target to $29, waxing optimistic about user growth and advertising prospects. As such, the stock is set to retake its 80-day moving average for the first time in three weeks.
As you can see on the chart above, Twitter has an SVS of 96 (out of 100), suggesting the shares have had no problems making big moves on the charts, compared to what the options market has priced in. What's more, the equity's 30-day implied volatility (IV) skew stands in the 89th percentile of its annual range, indicating short-term calls have rarely been cheaper relative to puts.
Should Twitter stock once again enjoy a positive earnings reaction next week, more analyst love could be in store. Although the security has more than doubled in the past year, and sports a healthy 2018 lead of 31.9%, just five of 28 analysts consider TWTR worthy of a "buy" or better endorsement.
IRBT Stock Stares Up at Resistance Ahead of Earnings
iRobot is slated to report first-quarter earnings after the close on Tuesday, April 24. IRBT stock plummeted 32.1% the day after the company's last earnings report, and suffered a one-day post-earnings drop of 13.5% prior to that. Looking back eight quarters, IRBT shares have averaged a one-day earnings reaction of 15%, regardless of direction.
While most of the stock market is higher today, iRobot stock is down 2.8% to trade at $65.12. The equity has struggled since the aforementioned post-earnings bear gap in February, and is staring up at resistance in the $65-$70 region. This area is home to IRBT's descending 50-day moving average, and acted as a ceiling in late 2018 amid Black Friday-related headwinds surrounding its signature Roomba vacuum.
Short sellers are clearly in control, too. Short interest jumped 12.3% during the past two reporting periods, and now represents more than 22% of IRBT's total available float. As these bears continue to pile on, it could translate into additional headwinds for the security.
In any event, IRBT sits at the top of our list above, with an SVS of 99. If past is prologue, we wouldn't be surprised if the shares once again exceed options traders' volatility expectations after earnings next week.