Unusual Options Activity: $2 Million in Earnings Plays
This week’s unusual options activity is all earnings plays.
Not those all-or-nothing, down-to-the-wire earnings plays. But each of these stocks are set to report earnings before these options expire.
When we’re in the heart of earnings season, more and more options activity revolves around earnings, making it impossible to ignore these events.
But it can still be useful to see which earnings reports investors are willing to place heavy wagers on. Like last week’s unusual Tesla trade, this activity can certainly point you in the right direction.
And today, we have three heavy hitters placing trades well ahead of earnings, that could see big gains even before the announcements.
Let’s get started…
Unusual Earnings Activity
Iovance Biotherapeutics (IOVA), a clinical-stage biotech company, saw a $670,000 bet placed on the stock to pop more than 20% in the next few weeks.
They purchased the November 19, 2021 $30 call options for $1.90.
Earnings are due in a few weeks, but what caught my attention was the stock’s price chart.
It’s trading in an ascending triangle pattern with a horizontal resistance line (in red) and a rising support line (in green).
These patterns are great, because they show us how much of a breakout to expect. When we get the breakout, you simply add the height of the pattern, $11.50, to the breakout point.
So, if we break out to the upside, that gives us a $39 price target per share, or more than 50% from the current price.
To the downside, well… It’s also a sizeable drop. And the earnings report will be the pivotal moment.
A better way to play it would be a straddle, where you also buy the put option at the same strike. Then, as long as you get the big move in either direction, you stand to make some profits.
Farfetch Limited (NYSE: FTCH), an online marketplace for luxury goods, is also seeing some unusual options activity.
A single trader wagered over $1 million on the November 19, 2021 $45 call options. They got them for $1.08, which means they’re expecting a quick double-digit move from the stock’s current $40 price range so they can cash out.
We have the earnings event in the coming weeks, but the price chart also shows us something big is coming.
It’s a descending triangle pattern this time, with a falling resistance line (in red) and a horizontal support (in green).
It’s not as bullish of a pattern as an ascending triangle — those tend to have more upside breakouts — but this trader is expecting a bullish move and was willing to put over $1 million on the line for it.
Our last unusual options trade is a gutsy play on popular fantasy sports platform, DraftKings (Nasdaq: DKNG).
A trader scooped up $370,000 of the November 5, 2021 $52 call options for $1.13. This is a very short-term trade, with the expiration coming up next Friday. But also, right on the expiration date, DraftKings is expected to announce their latest quarterly results.
No fancy price patterns for this chart, but there is a clear uptrend intact.
You know the saying, the trend is your friend. Well, this trader is taking it to the extreme.
With that strong support line intact, they are willing to throw down $370,000 on the stock to rise. And if it doesn’t, they can hold out till the very last day and take a flier on an earnings move.
The earnings move may be what they’re playing to begin with, but by jumping in weeks ahead, like we saw with the other options activity today, they can benefit from prices rising heading into the event.
Investors focus on earnings so much, that you can see how volatile prices become leading up to it, and especially afterward.
All of this week’s unusual options activity was on moves around earnings, so it’s got my attention. It should have yours too.
Chad Shoop, CMT
Editor, Quick Hit Profits
Chart of the Day:
Which Way Will Apple Go?
Keeping to our theme of earnings announcements today, let’s check in on the Apple (AAPL) chart…
AAPL has been attempting to reclaim a support line that started in July and has recently become resistance, as AAPL got caught up in the September volatility. It tried to break above the former support in late September, only to get smacked down through October.
Now, though, AAPL is making another attempt. It rejected off the resistance line in Friday’s trading session, and looks to be opening around the same level this morning.
If you’re bullish on AAPL, it makes sense to add some long exposure by way of call options here. AAPL has an earnings report on Thursday, and hasn’t had an earnings miss since 2016. I’m confident it will continue that streak with this quarter’s report.
There is a possibility that supply chain issues have weighed on the U.S. tech behemoth, but demand for Apple’s product remains strong — at least anecdotally.
No matter the cost, folks always seem to line up for the newest iPhones and AirPods. It’s really one of the most incredible product stories in U.S. history: a luxury brand has somehow convinced the world that it’s the baseline, everyday, layman’s computing product suite.
That’s hardly a convincing technical reason to see AAPL breaking above that support line, I’ll concede. But it’s still stuck in my mind as we approach AAPL earnings.
Managing Editor, True Options Masters
Investing has consumed my life since college. While double majoring in finance and economics at the University of North Carolina at Greensboro, I founded the university’s economics club, joined the finance club and participated in the Chartered Financial Analyst research competition to represent our school.