What’s New In Weeklys? – 9/11/2013

There is not much new with Weeklys since next week is expiration week.  For those new to short dated options you should know that seven (trading) day options are not listed the week before expiration week.  It would be a fairly redundant exercise since there are already options that expire next week.  However there are three names that are consistently on the Weeklys list that have potential stock moving events on the horizon.

First, and this was discussed last Wednesday as well, Lululemon Athletica (LULU – 69.02) reports their earnings tomorrow before the market opens.  At this point it is too late to trade the earnings report, but we can always watch.  Sort of like being late to yoga class and locked out.  You can watch, but what good does that do?   Shares dropped 17.5% on the day after reporting earnings back in June which is a bigger move than the average 8% reaction to earnings from the past three years of data.  The LULU 70 Straddle that expires Friday went out at 6.77 on the close today.   A 8.39% drop or 11.23% gain in the share price is needed by Friday just to break even on that if held to the close on Friday.

Next week two big companies, Oracle (ORCL – 33.02) and FedEx Corporation (FDX – 110.25) will report after the market closes on Wednesday.

The reaction to FDX’s earnings can be pretty interesting.  It always seems to be a yawn or a big move – not much in between.  The average move off earnings is about 4%, but last quarter the stock was up only 1%.  Going back two quarters the stock actually dropped 7%.

Many Larry Ellison fans are busy watching the America’s Cup, but those fans will also want to check the tape for ORCL’s results next week.   ORCL will need some fans to avoid an earnings losing streak.  The past two quarters ORCL has dropped between 9 and 10% in reaction to earnings.  The typical earnings move is 5%.  It is too early to really tell what the market is pricing in, but often when there has been a large earnings reaction the market is skittish in front of the next number.  Checking in on ORCL next Wednesday is on my to do list already as I’ll be curious is option pricing is discounting a 5% move that is typical of the past or something higher than that based on recent history.

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Russell Rhoads, CFA

CBOE Options Institute

Russell Rhoads, CFA, is a Senior Instructor with the Options Institute at the Chicago Board Options Exchange. He joined the Institute in 2008 after a career as an investment analyst and trader with a variety of firms including Highland Capital Management, Caldwell & Orkin Investment Counsel, TradeLink Securities and…

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