Earnings season rolls on, and there are plenty of heavy hitters yet to report this week. On tomorrow's docket are Potash Corp. of Saskatchewan (POT), Southwest Airlines Co. (LUV), and Wynn Resorts, Limited (WYNN). Despite a string of positive profit surprises in recent quarters, pre-earnings pessimism is practically palpable on all three stocks.
First up, Potash Corp. of Saskatchewan (POT) is expected to report a second-quarter profit of $1.21 per share, up from its year-ago profit of 62 cents per share. POT is on a hot streak in the earnings confessional, having exceeded analysts' per-share profit expectations in each of the past three reporting periods.
However, traders aren't exactly bracing for another upside surprise. In today's session, put volume on POT has already accelerated to 1.91 times the norm. A large block of 2,200 September 85 puts changed hands at the ask price earlier, indicating they were purchased. With POT trading north of $98 at last check, these 85-strike puts are well out of the money.
In fact, options speculators maintain a generally skeptical attitude toward the fertilizer firm. POT's Schaeffer's put/call open interest ratio (SOIR) of 0.85 ranks in the 74th annual percentile, indicating that short-term options players have been more bearishly aligned just 26% of the time.
POT is in the midst of a fledgling rebound on the charts, with the stock cruising higher along support at its 10-day and 20-day moving averages since early July. The stock also recently toppled its 50-day trendline, but the century level looms large overhead. This psychologically significant region has capped POT's progress consistently during the past couple of weeks.
As for Southwest Airlines Co. (LUV), analysts are looking for the company to announce a second-quarter profit of 27 cents per share, up from 8 cents per share in the same quarter last year. LUV has turned in a solid fundamental performance during the past year, topping Wall Street's consensus profit expectations in each of the past four reporting periods.
Nevertheless, bearish sentiment is on the rise ahead of LUV's turn in the earnings spotlight. The stock's SOIR of 1.79 indicates that puts nearly double calls among options set to expire within the next three months, and this ratio arrives in the 97th annual percentile -- just three percentage points from a bearish peak.
In the front-month series, LUV's August 10 put is far and away the most popular strike. This out-of-the-money put carries open interest of 10,072 contracts, compared to peak call open interest of just 1,264 contracts at the August 12 strike (which is currently at the money).
Elsewhere, short sellers have recently ramped up their exposure to the airline issue. Short interest on LUV rose by 3.74% during the most recent reporting period, and now accounts for roughly 3% of the stock's available float.
Meanwhile, on the charts, LUV is battling newfound resistance from its 32-week moving average. This formerly supportive trendline has capped the stock's rally attempts since a late-June breach, and could continue to cause mayhem during the short term.
Finally, Wynn Resorts, Limited (WYNN) will take the earnings stage after the market closes tomorrow, with analysts anticipating a profit of 36 cents per share, up from 9 cents per share in the year-ago quarter. WYNN has comfortably surpassed Wall Street's expectations in each of the past four reporting periods.
Nevertheless, demand is rising for bearish bets ahead of the casino concern's quarterly report. During the past 10 days, traders on the International Securities Exchange (ISE) have bought to open 3.89 puts for every call on WYNN, with pessimistic options nearly quadrupling their bullish counterparts. This ratio ranks in the 99th annual percentile, as traders have rarely scooped up puts over calls at a faster clip.
In the same bearish vein, WYNN's SOIR of 1.47 stands in the 92nd annual percentile, suggesting that short-term options traders have been more bearishly aligned only 8% of the time. Likewise, short interest accounts for a healthy 7.1% of the equity's float.
Unlike LUV, WYNN is currently enjoying a healthy relationship with its 32-week trendline, which has guided the shares higher since May 2009. However, round-number pressure in the $90 neighborhood has put a dent in the equity's positive momentum. This looming chart level has provided a staunch technical ceiling since April -- but another well-received earnings report could give WYNN a fighting chance to topple this troublesome resistance.
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