Earnings Reports Spike Option Volatility
We’re solidly
into the earnings season and the Street’s reaction has been mixed. Microsoft
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MSFT |
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Intel
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major disappointments.
Today our focus
is on a series of high-profile earnings. First on that list is Amazon
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AMZN |
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Street expectations are that the online retailer will post a loss of $.31, but we think the number will be more like a loss of just
$.29. The three-month volatility for AMZN is 98%, but I’m seeing 150%-plus in the
front month.
Next we look at
Compaq
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CPQ |
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PowerRating). CPQ’s three-month volatility average is 67%, but spiked up to
90% last week. Right now the at-the-money straddle is 4 1/2, versus a fair value
of 3 5/8. That extra 7/8 of juice is the added protection the market makers
demand for the uncertainty of today’s earnings announcement. The Street is looking
for a profit of $.29 and we think that’s exactly what they will be.
Next, Nortel
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volatility looks like a relative bargain, as the three-month average is 66%, but NT
is trading at just 80%, a mere 20% increase above normal. Last Thursday the
volatility peaked at 110%, so apparently the Street is comfortable with the idea
that NT will meet or just exceed the estimates, which stand at $.17 for the
quarter. Our estimates stand at $.18, so we’re a tad bullish on
NT’s prospects.
Also
noteworthy are: Siebel Systems
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SEBL |
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LSI |
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Associate International
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CA |
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