Ahead of earnings, open interest and volume on options is a telltale sign for investors about the sentiment toward a particular stock. Specifically, an analysis of the put-call ratio can give investors a clue or two about whether the rest of the investing community is bullish or bearish on a stock heading into an earnings report.
Given that we’re in the thick of the Q2 earnings season, now’s a good time to start looking at those numbers.
The put-call ratio is merely a quotient of the trading volume of put options (bearish) to call options (bullish). The final number — which will tell you whether there are more bearish bets on a stock, or more bullish ones — is viewed as an indicator of investment sentiment in an underlying stock. When call contracts outnumber puts, the put-call ratio is “low,” which signifies bullish sentiment. When puts outnumber calls, the ratio is “high,” which means the market is more bearish.
Put-call ratios can measure overall open interest as well as daily volume. I looked at options that would expire within the next 30 days, on companies that are scheduled to release earnings this week. Additionally, I only looked at stocks where put-call ratios for open interest and volume were both less than 0.6 (so, very bullish), on options that had total open interest of more than 10,000 contracts during the next 30 days.
5 Stocks With Bullish Options Sentiment
- Linear Technology (LLTC), reports 7/22 in the p.m.: Linear Technology designs and builds analog integrated circuits, targeting the high end of an overall market that’s estimated to be around $40 billion per year. LLTC is expected to report earnings of 51 cents per share when it announces earnings after the bell today. LLTC’s put-call ratio stands at a very bullish 0.28 — the lowest of all five stocks.
- B/E Aerospace (BEAV), reports 7/23 in the a.m.: B/E Aerospace makes cabin interior products for commercial and business aircraft, and also sells and services them. BEAV is slated to release earnings Wednesday before the bell, and is expected to report earnings of $1.06 per share, according to Capital IQ estimates. BEAV, which sports a put-call ratio of 0.4, also is the subject of increased short interest, with June 30’s 1,793,210 shares sold short representing a 45.6% increase since June 13.
- EMC (EMC), reports 7/23 in the a.m.: EMC is an information and virtual infrastructure company. EMC will report earnings Wednesday morning, and analysts expect the company to report a 43-cent profit for the quarter. The put/call ratio for EMC is a small 0.53.
- American Airlines (AAL), reports 7/24 in the a.m: American Airlines is one of the country’s major airline carriers. The average analyst estimate for AAL earnings, due out Thursday morning, is $1.94 per share, according to Capital IQ. According to the Dallas Morning News, American had sold off the last of its hedges on fuel as of a few weeks ago, which could leave the company exposed to volatile moves in fuel. Still, AAL’s put-call ratio stands at a bullish 0.34.
- Nokia (NOK), reports 7/24 in the a.m.: Nokia is a tech hardware and software company best known for its mobile handsets, but it completed the sale of that business to Microsoft (MSFT) earlier this year. When Nokia reports earnings Thursday morning, analysts surveyed by Capital IQ expect profits of 7 cents per share. The put-call ratio is 0.59, which means options traders are generally bullish on NOK ahead of earnings.
As of this writing, David Becker did not hold a position in any of the aforementioned securities.