Options at work
- WK has consolidated since late May after 60% correction
- Options open interest high in two different expirations
- Earnings due in a little more than two weeks
For the past couple of weeks, data-management cloud stock Workiva (WK) has appeared on the LiveAction scan for unusual open interest (OI), with positions running around seven times average (roughly 8,950 contracts vs. 1,350).
The options chain revealed the majority of those positions were concentrated in the November $55 and $60 puts (1,000 contracts each) and the January $80 and $90 calls (2,000 contracts each):
Source: Power E*TRADE. (For illustrative purposes. Not a recommendation.)
On Monday, WK traded mostly between $73–$75, which means all the heavy–OI options were out of the money (OTM)—that is, the put strike prices were below the stock price and the call strikes were above it. (Note: All the options positions were established on October 10.)
And as the following chart shows, those strike prices are near the upper and lower boundaries of the trading range WK has been in since May. The bottom of the range has remained around $60, while the stock expanded the range to the upside over time—after initially hovering around $75, it increased to $80 after a late-September jump:
Source: Power E*TRADE. (For illustrative purposes. Not a recommendation.)
Right now, WK is scheduled to release earnings in a little more than two weeks (on November 2). Whether any or some of these large options positions were established in anticipation of earnings volatility—either as a hedge for an underlying stock position or to potentially profit from a price move—the chart shows the stock has made some sizable moves after reporting its numbers (E).
These recent examples also highlight a pattern that has been fairly consistent over the company’s past dozen earnings announcements, dating back to November 2019: The stock has more often than not made a short-term move in the opposite direction of its earnings-day move.1
For example, with the exception of the May earnings release (when the stock closed lower after earnings and kept falling for several more days), whenever WK closed higher after releasing earnings, it was lower five trading days later, but when it closed down after earnings, it was higher five trading days later. The only other time this pattern hasn’t played out since November 2019 was in February 2020.
Market Mover Update: Many US-listed Chinese stocks, including Alibaba (BABA), Baidu (BIDU), and JD.com (JD), fell sharply on Monday as Xi Jinping’s unprecedented third term as China’s President appeared to raise concerns about the effects his continued consolidation of power may have on private enterprise and economic growth.2
Today’s numbers include (all times ET): S&P Case-Shiller Home Price Index (9 a.m.), FHFA House Price Index (9 a.m.), Consumer Confidence Index (10 a.m.).
Today’s earnings include: Archer Daniels Midland (ADM), UBS Group (UBS), United Parcel Service (UPS), Synchrony Financial (SYF), General Motors (GM), Coca Cola (KO), General Electric (GE), Kimberly-Clark (KMB), Alphabet (GOOGL), Spotify (SPOT), Visa (V).
Click here to log on to your account or learn more about E*TRADE's trading platforms, or follow the Company on Twitter, @ETRADE, for useful trading and investing insights.
1 Reflects Workiva (WK) daily price data, November 2019–November 2022. Because WK announces earnings after the close, in this case “earnings day” refers to the stock’s price action on the trading day after the announcement. Supporting document available upon request.
2 Reuters. China ADRs tumble as Xi's new team sparks worries over economy's path. 10/24/22.