A Different Option For Tech Investors

I am seeing something interesting in a stock that I have recently highlighted in another investment idea.  Applied Optoelectronics (AAOI) is a Zacks Rank #1 (Strong Buy) and is slated to report earnings on May 4.  That said, I am seeing some big action in the May 50 calls.

As I write this I see volume of 2720 contracts with open interest of 2285.  So while we don’t know how many of those contracts that were already written or open were closed today, the implication is that a lot more new ones were initiated today.  That is usually a bullish signal.

I see those calls trading at $3.70, an increase of around 63% for the day.  The idea would be that the company will be above $53.70 on May 19… and while we cannot know the future we can take a look at some recent moves following earnings.

The most recent quarterly report was the December 2016 quarter that was released on February 23.  That was a beat of the Zacks Consensus Estimate after the company had already raised guidance in January.  Since that time we have seen another increase in guidance and estimates moving higher.  We are expecting $96M on top and $0.95 on the bottom line.

Follow Brian Bolan on Twitter: @BBolan1

A Quicker Call

Tech investors always follow the earnings reports of Amazon (AMZN).  The retailer has killed tons of players, big and small.  When the company started breaking out AWS sales we saw a big spike as the revenue and earnings of this division basically paid for the whole retailing sector. AMZN is reporting tonight after the close.

AMZN has historically been very conservative on the guidance front, so investors will be keying in more on the sales numbers that are expected to be $35.3B.

I am looking for some more clarity on the shipping/fulfillment end of the business and that could be a huge driver of margins down the road.  Any word on improvements there and we could see the stock pop.

The options market is telling me that a move of about 5% is what is expected, but that tends to change along with the price.  At approximate $920 at the time of writing this, we could see a close of around $966 tomorrow if investors like the report and follow the lead of the options market.  That doesn’t always happen, but since this article is looking at the options for investing I feel like this is a good one to take a gamble on.

The April 28 calls expire tomorrow and present an “all or nothing” style strategy.  A miss and your calls will be worthless.  A beat and expected move of about 5% makes the 960 calls the only bet.  I see them trading around $4.45 right now. Which means they could be worth about $6 is everything works out. 

I know this one is much more of a gamble than the other, but a 1 day holding period for the potential of a 50% win is pretty good.  That said, if you want a little more time, wait until after earnings and look at the early June expirations.  I see a little volume for the $970 strike price trading at $11.55.

Amazon is currently a Zacks Rank #3 (Hold) but sports a Growth Style Score of “A” and that is what I am all about.

 

Amazon.com, Inc. Price and Consensus

Amazon.com, Inc. Price and Consensus | Amazon.com, Inc. Quote

 

Save Your Chips

Finally, we have Intel (INTC) which has been on a great run of late.  That said, the stock is still a Zacks Rank #4 (Sell) as estimates have been heading the wrong way.

When I dug deeper into that idea I see that the current quarter’s estimates have held steady for the last 90 days at $0.65.  Next quarter saw a one cent move in the wrong direction and there was a two cent move in the 2018 numbers.  That tells me this is a “soft” Zacks Rank #4 (Sell) and could kick higher to a Zacks Rank #3 (Hold) as the Rank is all about the consensus earnings estimates.

INTC reports tonight and I really want to avoid this one.  That said I want to take a look at the strike prices with the biggest open interest.  I see the $36.5 calls have over 38K in open interest.  On the other side of the ledger, the puts at the $34 strike have 31K in open interest.

Given the big run on this stock, I would not want to get too aggressive.  This might be the spot we sit on the sidelines and just take it all in.

 

Intel Corporation Price and Consensus

Intel Corporation Price and Consensus | Intel Corporation Quote

 

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Intel Corporation (INTC): Free Stock Analysis Report
 
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Applied Optoelectronics, Inc. (AAOI): Free Stock Analysis Report
 
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