Earnings Season Highlights

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A collection of noteworthy post-earnings reactions
Published on Feb 3, 2025 at 8:59 AM
  • Buzz Stocks
  • Analyst Update

Shares of online real-estate marketplace Zillow Group Inc Class A (NASDAQ:ZG) are down 0.8% in premarket trading, despite receiving a bull note from KeyBanc. The analyst raised ZG's rating to "overweight" from "sector weight" and set a $100 price target -- a 26.3% premium over Friday's close -- citing potential tailwinds from an improving housing market.

Zillow stock has gained 40% over the past 12 months, yet 11 out of 25 analysts still rate it as a "hold" or worse, leaving room for additional upgrades that could fuel bullish momentum. On a year-to-date basis, ZG stock holds a nearly 12% lead. The stock’s most recent rally stalled just above $82, near its Nov. 29 three-year high of $83.67. Meanwhile, ZG's 10-day moving average remains a key technical support level.

An unwinding of pessimism could boost Zillow stock, as options traders are more put-biased than usual. The stock’s Schaeffer's put/call open interest ratio (SOIR) of 1.01 ranks in the 99th percentile over the past year, signaling bearish sentiment that could unwind.

Moreover, ZG stock's options are reasonably priced, with a Schaeffer's Volatility Index (SVI) of 60%, sitting in the 29th percentile of its annual range. This suggests low implied volatility, making it a compelling time to consider options trading on Zillow stock.

Published on Jan 31, 2025 at 4:23 PM
Updated on Jan 31, 2025 at 4:27 PM
  • Market Recap
 
Published on Jan 31, 2025 at 3:19 PM
  • Strategies and Concepts

Why Options Traders Use Married Puts

by Schaeffer's Digital Content Team

Trading options can be a complicated process as a lot of options strategies are available and traders need to evaluate all of the possible routes ahead of executing a trade. The beauty of options trading is that there are options strategies for every market environment. In this series, we will cover all available options strategies for an educated trader to consider when identifying trading opportunities.

In this article, we will be talking about one of the most popular options strategies known as Married Puts. When using a married put options strategy, traders hold a long position in a stock and also purchase an at-the-money (ATM) put option on the same stock in an effort to protect against potential downside in the short term, or against potential stock price depreciation.

A benefit of choosing married puts from the list of available options strategies is that the trader is able to cap his potential loss to a limited amount of money on the stock, in the worst-case scenario. This options strategy still allows the trader to participate in any stock price gains that happen as a result of stock price appreciation. 

The slight downside, however, to selecting married puts from the list of available options strategies is that the put option has a premium which can be significant based on the stock one owns. There is also the issue of additional commissions that must be paid, depending upon the brokerage being used.

If you have mastered covered calls, you will catch on to how married puts work pretty quickly. In fact, married puts are incredibly similar to covered calls. The difference is that, instead of selling a call option on the underlying stock like you would with a covered call, you buy a put option to protect you from the downside with the married put strategy.

A married put is essentially an insurance policy for your stock. The married put options strategy is a bullish options strategy used by traders concerned with a potential near-term drop in stock price. Utilizing the married put options strategy enables traders to reap all the benefits of owning the stocks, like receiving dividends and voting rights. If a trader is simply buying call options, he does not access these benefits of stock ownership.

A married put options strategy behaves similarly to a long call option purchase as both have unlimited profit potential, because there is no limit to how much the stock can appreciate at price. However, the potential profit from the married put options strategy is much lower than the potential profit from purchasing a long call option due to leverage. The underlying stock simply does not have the leverage that an options contract does, and the additional cost of purchasing the put option further decreases the profit potential.

In order to breakeven using married puts, the underlying stock return must be equal to the premium paid for the put option. Anything above this breakeven point is pure profit.

What is the maximum profit potential of a married put? Potential profit is unlimited as the underlying stock price can rise indefinitely. However, the profit is reduced by the cost of the put option purchase and brokerage commissions.

What is the maximum loss potential of a married put? Potential loss is limited to an amount equal to stock price minus put option strike price, plus the cost of the put purchase and associated commissions. This maximum loss is realized only if the stock price is at or below the strike price of the put option at expiration. If such a stock price decline occurs, then the put option can be exercised, or sold.

A married put is generally not used as a profit-driving options strategy, but rather it is used as a capital-preserving options strategy. The cost of the put option purchase is the total cost of this options strategy (plus commissions). Investors should only implement the married put options strategy as an insurance policy. Why? Because, more often than not, the trade will end up as a loss if the underlying stock price doesn’t move significantly higher. This added protection for your stock portfolio will come at a cost including the price of the put option, commissions, and other potential fees.

Consider simply buying put and call options when looking at all available options strategies. Buying options is extremely simple, provides the power of convexity (unlimited upside with capped downside), AND can result in significant portfolio growth in a much shorter period of time than a stock portfolio. Schaeffer's offers a wide variety of put and call option buying strategies that are great for beginners and experts, alike.

Published on Jan 31, 2025 at 3:09 PM
Updated on Jan 31, 2025 at 3:11 PM
  • Technical Analysis
  • Options Recommendations

Subscribers to Schaeffer's Weekend Trader options recommendation service received this DOCU commentary on Sunday night, along with a detailed options trade recommendation -- including complete entry and exit parameters. Learn more about why Weekend Trader is one of our most popular options trading services.

Software stock DocuSign Inc (NASDAQ:DOCU) has moved steadily lower since its early December two-year high, which it hit after a post-earnings surge. The recent pullback brought it to several layers of technical support, however, including the ascending 50-day moving average. This trendline is just above the $87 level, which three times the stock’s initial public offering (IPO) price and served as pre-earnings resistance in late November.
Though the 20-day moving average rejected price action in recent sessions, the shares have still made a few moves above it. With all of this in mind, now looks like a good time to bet on DOCU’s next leg higher.

DOCU Jan31

Though shorts have been in covering mode since the stock’s October peak, short interest still represents 4.5% of the stock’s available float and is 60% above last year’s short interest trough. This leaves plenty of short covering potential.

Despite DocuSign’s blowout earnings report, two-year high, and roughly 46% year-over-year gain, analysts are mostly bearish. Of the 23 brokerages in coverage, only four carry a “buy” rating, with the rest a “hold” or worse, and a shift in sentiment could give the shares a boost.
Our recommended call option has a leverage ratio of 6.2 and will double on a 16.1% rise in the underlying security.
Published on Jan 31, 2025 at 1:01 PM
Updated on Jan 31, 2025 at 1:42 PM
  • 5-Minute Market Rundown
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Published on Jan 31, 2025 at 11:45 AM
  • Midday Market Check

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Published on Jan 31, 2025 at 11:18 AM
  • Buzz Stocks

Vertex Pharmaceuticals Inc (NASDAQ:VRTX) stock is up 6% at $465.02 at last glance, after the U.S. Food and Drug Administration (FDA) approved the biotech's new non-opioid painkiller, Journavx. In a statement to the press, the company said it was the "first new class of pain treatment approved in more than 20 years." In response, Scotiabank raised its price target on VRTX by $3 to $433. 

Now recovered from its mid-December bear gap, VRTX is already up 15.7% since the start of 2025. Today's pop has the stock breaking back above the 250-day moving average, which provided support prior to last month's pullback, and recently acted as pressure. 

Options traders are chiming in straight out of the gate, with 8,427 calls and 2,690 puts exchanged so far -- 6 times the volume typically seen at this point. Expiring today, the weekly 1/31 417.50-strike put is the most popular, with new positions being sold to open there. 

Today's trading shows a shift in sentiment, as puts were more popular than usual over the last 10 weeks. This is per VRTX's 50-day put/call volume ratio of 1.18 at the International Securities Exchange (ISE), Cboe Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), which ranks higher than 89% of readings from the past year. 

Published on Jan 31, 2025 at 9:23 AM
  • Opening View
 
Published on Jan 31, 2025 at 9:20 AM
  • Buzz Stocks

The shares of blue-chip energy concern Chevron Corp (NYSE:CVX) are down 1.3% in premarket trading after the company missed fourth-quarter earnings estimates. Weakness in its refining business drove the decline, with its first loss in four years. However, revenue surpassed expectations with ease.

Coming into today, CVX boasts modest leads on a year-to-date and year-over-year basis, up 7.9% and 6%, respectively. The equity is on track for a monthly win, but is now poised to turn in a loss for the week. Set to open near $154.25, Chevron stock could slip below key support at $155, though support at its 80-day moving average may limit further downside.

Analysts could feel compelled to adjust their outlooks. Of the 22 brokerages covering CVX, 17 rate it a "buy" or better. The stock’s average 12-month price target of $176.43 represents a 12.9% premium to yesterday's close, leaving plenty of room for downgrades and/or price-target cuts.

Meanwhile, options traders are showing heightened bearish sentiment. Chevron stock’s 50-day put/call volume ratio over at the International Securities Exchange (ISE), Cboe Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) ranks in the 100th percentile of the past year.

Published on Jan 31, 2025 at 9:12 AM
  • Buzz Stocks

Apple Inc (NASDAQ:AAPL) reported a top- and bottom-line beat for its fiscal first quarter after yesterday's close. The tech giant also shared a strong sales growth outlook, pointing to recovering iPhone sales amid the rollout of artificial intelligence (AI) features. No fewer than 14 analysts lifted their price targets, including Goldman Sachs to $294 from $280.

Coming into today, 15 of the 36 analysts covering Apple stock still rate it a tepid "hold" or worse. This means there's still plenty of room for upgrades amongst the brokerage bunch.

AAPL is up 4.2% to trade at $247.60 in premarket trading. Should gains hold, the equity will mark its fourth win in the last five days, and notch their best day since June. The shares are also on track for their first weekly gain in five as they extend a bounce off $220 and boast a 28.8% year-over-year lead.

While calls still outpace puts in the options pits, options traders have been more bearish than usual of late. At the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), the equity's 50-day call/put volume ratio sits higher than 80% of annual readings. An unwinding of this pessimism could boost AAPL.

It's worth noting the security has a history of exceeding volatility expectations, as evidenced by its Schaeffer's Volatility Scorecard (SVS) rating of 77 out of 100. In simpler terms, now may be a good time to weigh in on Apple stock's next more with options.

Published on Jan 30, 2025 at 4:21 PM
  • Market Recap
 
Published on Jan 30, 2025 at 2:40 PM
Updated on Jan 30, 2025 at 2:57 PM
  • Best and Worst Stocks

Fortinet Inc (NASDAQ:FTNT) hit a record high of $102.17 today after breaking past recent pressure at the $100 level. The software name could soon extend those highs, too, considering it's the best stock to own in February, historically. 

FTNT Jan30

More specifically, FTNT took the top spot on Schaeffer's Senior Quantitative Analyst Rocky White's list of the best stocks to own next month. Over the last 10 years, the equity has finished February higher nine times, averaging an impressive 9% gain. A move of similar magnitude would put the shares above $111, adding to its roughly 55% year-over-year gain. 

An unwinding of pessimism could provide tailwinds as well. Despite the stock's outperformance, 23 of the 37 analysts in coverage carry a "hold" or worse rating, while the 12-month consensus price target of $98.84 sits at a slim discount to current levels. 

Furthermore, puts have been much more popular than usual in the options pits. FTNT's 10-day put/call volume ratio of 1.79 at the International Securities Exchange (ISE), Cboe Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) ranks higher than 91% of readings from the past year. 

Traders can expect some volatility from the company's earnings report, due out after the close on Thursday, Feb. 6. FTNT's recent post-earnings history is reasonably encouraging, however. The stock closed higher after three of its quarterly reports last year, including a large 25.4% pop in August. 

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