Pre-earnings put play?

Many traders like to monitor options positioning before an earnings announcement because it can sometimes provide clues about which way the market may be leaning, even when the underlying stock isn’t moving much.

In the case of Cirrus Logic (CRUS), though, there was no shortage of activity in both arenas on Wednesday.

CRUS, which is currently scheduled to release earnings on November 4, was at or near the top of multiple scans for unusual put options activity, with roughly 72 times the average number of puts changing hands. The key trades were in the November $105, $115, and $120 puts:

CRUS traded as high as $124.95 in the opening minutes of Wednesday’s session, but ultimately fell as low as $116.55. While the appearance of large put positions shortly before a stock experiences its biggest intraday decline in more than month may seem to be a bearish development, it’s always important to remember there are two sides to every trade. In this case, traders who shorted these puts may have a bullish outlook on CRUS, at least over the options’ lifetimes.

That said, while the volume in the $120 puts was a little higher than the volume in the $105 puts (and later increased to more than 2,700), both contracts had identical 2,000-contract trades shortly before 10 a.m. ET. That could lead some observers to consider the possibility a large trader opened a bear put spread—a limited-risk, limited-reward strategy with the potential to profit (at expiration) if CRUS continued to drop.

CRUS also landed on two scans for big implied volatility increases, which wasn’t surprising because the stock sold off more than 5.5% intraday. That dropped shares further away from their late-August all-time highs, and closer to the multi-month low they hit earlier in the month:

The chart shows most of the August rebound took place after CRUS released earnings on August 6. In fact, the stock has rallied more than 13% in the five trading days after each of its past three earnings releases. Longer term, though, its short-term post-earnings performance has been more mixed. While CRUS has a positive five-day post-earnings return after four of its past five announcements (and six of the past 10), since 2010 it fell in the five days after earnings slightly more often than it rallied (29 times vs. 27 times).¹

In fact, the stock has historically performed a little better in the five trading days before earnings, rallying 32 times and declining 24 times, with an average five-day return of 1.7%.

Market Mover Update: Bonds fell along with stocks on Wednesday as yields continued to climb. The 10-year Treasury yield rallied yesterday after closing above 4.2% for the first time since July 26 on Tuesday. December gold futures (CLZ4) pulled back more than 1% after Tuesday’s record close of $2,763.10.

Centrus Energy (LEU), NuScale Power (SMR), and Oklo (OKLO) pulled back for a second-straight day on Wednesday, although all three nuclear stocks have held on to most of last week’s gains (see “AI fuels unique energy space”).

Today’s earnings include: American Airlines (AAL), Dow (DOW), Honeywell (HON), Keurig Dr. Pepper (KDP), LKQ Corp Com (LKQ), Southwest Airlines (LUV), MSC Industrial (MSM), Northrop Grumman (NOC), United Parcel Service (UPS), Edwards Lifesciences (EW).

Today’s numbers include: weekly jobless claims (8:30 a.m.), Chicago Fed National Activity Index (8:30 a.m.), S&P Global PMI Composite Flash (9:45 a.m.), new home sales (10 a.m.), EIA Natural Gas Report (10:30 a.m.).

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¹ All figures reflect Cirrus Logic (CRUS) daily prices, 2010-2024. Supporting document available.