Earnings Snapshots for Week of October 21st, 2013

Netflix (NFLX) will report earnings 10/21 after the close and the Street estimate calls for $0.49 EPS and $1.1B in Revenues, and for FY14 $3.46/$5.08B. NFLX shares closed lower last quarter after closing higher the prior two reports, and a 6 quarter average max move of 22.8%. The $19.4B Co. trades 99.6X earnings, 4.92X Sales and 17.55X Book, but still not an EPS story, focused on investments in content to grow subscriber numbers, and also undertaking a strong growth strategy Internationally. NFLX continues to announce content deals and its new original content shows are drawing a new class of subscribers. Q3 subscribers are seen to be at 35M, a 13% growth Y/Y. On 10-14 UBS boosted its target for NFLX to $340, while on 10-10 Needham started NFLX a Buy with a $425 target. NFLX has 13.3% of its float short at 6.96M shares, down from 7.2M shares on 7.1 and near a 2 year low. NFLX shares on the chart recently took out the 2011 high and been in a clean channel up, the first Fibonacci extension target is at $365, followed by $400. Shares have channel support at $305, and the 50 day SMA at $296.55, while downside price-support on a sharp move lower is the $260 level. NFLX options are pricing in an 11% earnings move, the cheapest implied move in the last 5 quarters, and well below the 6 quarter average max move of 22.8%. NFLX rarely sees large option trades, but on 10-14 the January 2014 450/470 call spread was bought 500X and on 10-18 the December $340 calls were active with 1,300 bought.

NFLX

Earnings Date IV1 IV2

IV1/IV2

Ratio

Straddle

Price

Implied

Move

IV30/HV30

Ratio

Actual

Max

Move

Closing

Move Put/Call

21-Oct 105.50% 61.20% 1.72 $36.65 10.99% 1.26

22-Jul 126.94% 73.90% 1.72 $37.00 13.98% 1.63 -6.00% -4.46% 0.84

22-Apr 84.89% 63.94% 1.33 $30.80 17.61% 1.83 14.22% 12.75% 0.82

23-Jan 81.71% 64.24% 1.27 $16.45 15.93% 2.02 -14.96% -13.44% 1.43

23-Oct 71.27% 63.22% 1.13 $11.63 17.05% 2.04 17.83% 15.25% 0.73

Trade to Consider: Long the NFLX Oct. 25th (W) $360/$365 Call Spread and $305/$300 Put Spread for a Net Debit of $2.65

VMware (VMW) will report earnings on 10/21 after the close with the Street consensus at $0.82 EPS and $1.29B in Revenues, and for FY14 $3.81/$5.95B. VMW shares closed higher last quarter by 16.7% after closing lower 3 of the prior 4 and an average 6 quarter max move of 10.6%. The $34.88B cloud infrastructure Co. trades 21.4X earnings, 7.17X Sales, and 5.67X Book with 15-20% forward EPS growth estimates. VMW is seeing rising operating margins and sees 15-20% revenue growth through 2016. On 10-18 JP Morgan upgraded VMW to Overweight with a $100 target, and on 10-3 FBN raised shares to Outperform with a $100 target. VMW is moving forward with more recurring revenues and its Hybrid Cloud will provide subscription revenues. VMW has 12.5% of its float short at 9.87M shares, down from 11.8M shares on 7.1, but remains elevated. On the chart VMW shares recently based along its 150 SMA at $77.45, while a break below that sets up for a return to $70. The $85 level is resistance 1, followed by $91, and then $98.20 is the 61.8% Fibonacci retracement of the 2012 high to 2013 low. VMW's options are pricing in a 9% earnings move. Back in early September traders bought sizable January 2014 $92.50 calls with 10,305 in OI currently, and also sold the $72.50 puts with 9,921 in OI right now. On 10-15 the November $65 puts sold 1,000X and bought 1,000 of the 82.5/92.5 call spreads.

VMW

Earnings

Date IV1 IV2

IV1/IV2

Ratio

Straddle

Price

Implied

Move

IV30/HV30

Ratio

Actual

Max Move

Closing

Move Put/Call

21-Oct 86.00% 50.10% 1.72 $7.30 8.96% 1.74

23-Jul 65.07% 42.11% 1.55 $4.70 6.65% 1.50 18.13% 16.72% 0.44

23-Apr 50.18% 36.69% 1.37 $7.95 10.50% 1.25 -6.86% -5.90% 0.46

28-Jan 47.13% 36.39% 1.30 $8.15 8.29% 1.75 -22.36%

-

21.54% 0.53

23-Oct 47.93% 40.88% 1.17 $8.45 10.09% 1.39 5.79% 2.32% 0.69

Trade to Consider: Long the VMW Oct. 25th (W) $92 / January 2014 $92.50 Diagonal Call Spread at $1.45 Debit

Coach (COH) will report earnings on 10/22 before the open and the Street view is $0.76 EPS and $1.19B in Revenues, and for FY15 $4.22/$5.69B. COH shares have closed lower 4 of its last 6 reports with an average max move of 12.65%. The $15.17B apparel Co. trades 12.7X earnings, 2.99X Sales and 18.2X FCF with 10-12% forward EPS growth expected. COH continues to deliver strong international sales growth, but the Yen weighed on results last quarter. Canaccord downgraded shares to Hold with a $62 target on 10-14, while on 10-3 Cantor initiated shares a Buy with a $66 target. COH is succumbing to rivals and many expect same store sales to fall by 6% or more this report. COH has 7.4% of its float short at 20.73M shares, up from 14.86M shares on 7/1 and at a 2 year high. COH shares on the long term chart have trend support down near $50, and resistance at the 38.2% Fibonacci at $58.80, followed by $62.50. Shares are starting to form a large inverse H&S pattern with the neckline near $57.50. Shares have traded in a narrow range for a few weeks and ready to make a big move. COH's options are implying an 8.55% move on earnings and exhibiting a very steep IV Skew. On 10-18 traders bought the Oct. 25th (W) $53.50 puts for 5,000+ contracts including one spread that bought 3,500 $53.5/$49 put spreads at $1.60. COH has also seen meaningful accumulation of November $52.5 and $50 puts with 15,000+ and 16,000+ in OI respectively.

COH

Earnings

Date IV1 IV2

IV1/IV2

Ratio

Straddle

Price

Implied

Move

IV30/HV30

Ratio

Actual

Max

Move

Closing

Move Put/Call

22-Oct 80.80% 43.00% 1.88 $4.60 8.54% 3.66

30-Jul 45.25% 32.25% 1.40 $5.00 9.86% 2.45 -9.93% -7.86% 0.92

23-Apr 43.40% 34.30% 1.27 $4.65 9.19% 2.18 12.15% 9.80% 2.62

23-Jan 39.80% 32.80% 1.21 $4.70 8.12% 1.33 -16.82%

-

16.36% 2.04

Trade to Consider: Long the COH November $52.5/$50 Put Spread at $0.80

Cree (CREE) will report earnings 10/22 after the close and the Street estimate calls for $0.39 EPS and $392.3M Revenues, and for FY15 $2.34/$1.97B. CREE shares have closed lower each of its last two reports after closing higher the previous 3, and a 6 quarter average max move of 13.45%. The $8.74B LED Co. trades 31.7X earnings, 6.3X Sales, 3.1X Book and 46.7X FCF with EPS growth slowing to 10% after a 89.7% and 31.95% growth years. CREE is facing increased competition that is impacting margins, and hurt earnings that sent shares lower last report, but have since recovered. On 10-17 Needham reiterated a Buy with an $80 target, and on 10-1 Canaccord raised shares to Buy with an $80 target. CREE has 9% of its float short at 10.5M shares, up from 8.3M shares on 7/1 but relatively low looking at a 2 year view of short interest. CREE shares on the chart have rallied back near 2013 highs after being hit hard last earnings reports, and above $75 would look to 2012 levels above $80 as resistance. On weakness I would look to $62.50 as a supportive level, being the first Fibonacci retracement and trend support for 2013, though below opens up for a return to $55. CREE options are implying an 8.87% earnings move. CREE has very little OI in November options but on 10-18 there was a single buyer of 700 Oct. 25th (W) $68 puts at $1.45. CREE saw notable December call buying after the sharp move lower last quarter, highlighted often and the $62.50 calls now deep ITM with 5,000+ in OI though 1,000 rolled up to the $82.5 strike on 10-18. On 10-2 CREE attracted unusual buys of 2,500 March 2014 $95 calls at $1.41 offers.

CREE

Earnings

Date IV1 IV2

IV1/IV2

Ratio

Straddle

Price

Implied

Move

IV30/HV30

Ratio

Actual

Max

Move

Closing

Move Put/Call

22-Oct 92.50% 54.65% 1.69 $6.55 8.87% 1.03

13-Aug 85.50% 52.25% 1.64 $6.07 8.31% 1.98 -22.70%

-

22.34% 1.45

23-Apr 58.80% 46.50% 1.26 $6.80 11.79% 1.44 -9.10% -2.13% 1.24

22-Jan 42.80% 37.20% 1.15 $3.17 9.47% 1.24 23.09% 22.04% 0.93

16-Oct 119.40% 49.80% 2.40 $2.24 8.55% 1.67 13.44% 10.42% 0.39

Trade to Consider: Sell the CREE November $80/$65 Strangle at a $3.55 Credit

Akamai (AKAM) will report earnings 10/23 after the close with the Street at $0.46 EPS and $387.55M in Revenues, and for FY14 $2.21/$1.78B. AKAM shares have closed higher 4 of its last 5 reports, and a 6 quarter average max move of 15.85%. The $9.28B Internet Infrastructure Co. trades 23.5X earnings, 6.3X Sales, 3.79X Book and 35.1X FCF with 13-15% forward EPS growth. On 10-16 DA Davidson upgraded shares to Buy with a $62 target noting the strong demand for fast delivery of digital content over the Internet. AKAM's move to value added software applications now accounts for over 50% of revenues and raising gross margins. AKAM has 6.3% of its float short at 10.83M shares, up slightly from 10.1M shares on 7/1, but down sharply from the 17.6M shares on 5/15. AKAM shares are trading back at a major resistance top from 2010/2011, and above can look to $55+ for the 2006/2007 highs. Shares are a bit extended into the report and a pullback would find support at $45.70. AKAM options are implying a 9.5% earnings move. AKAM has seen notable accumulation of ITM November $47 calls with 3,500 added on 10/10 and then another 1,000 on 10/15.

AKAM

Earnings

Date IV1 IV2

IV1/IV2

Ratio

Straddle

Price

Implied

Move

IV30/HV30

Ratio

Actual

Max

Move

Closing

Move Put/Call

23-Oct 47.80% 34.60% 1.38 $4.95 9.49% 2.01

24-Jul 55.79% 41.50% 1.34 $4.05 9.04% 2.59 3.92% 3.00% 1.20

24-Apr 61.00% 44.10% 1.38 $4.38 12.14% 2.36 21.03% 17.70% 0.65

6-Feb 77.76% 46.40% 1.68 $4.16 10.00% 2.59 -19.33%

-

15.19% 0.97

24-Oct 68.77% 46.00% 1.50 $5.16 14.29% 3.15 10.99% 6.72% 1.59

Trade to Consider: Sell the AKAM November $43 Put at $0.37 and Buy the November $55/$57.5/$60 Call Fly at $0.28, Net $0.09 Credit (Willing to be long AKAM at $43)

F-5 Networks (FFIV) will announce results 10/23 after the close and the Street consensus is at $1.19 EPS and $384.63M in Revenues, and for FY14 $5.11/$1.64B. FFIV shares have closed higher 7 of its last 8 reports, and a 6 quarter average max move of just under 11%. The $6.9B networking tech Co. trades 17.2X earnings, 4.76X Sales, 4.6X Book and 14.75X FCF with 13-15% forward EPS growth. On 9-24 Goldman Sachs cut shares to Neutral with a $93 target, but on 9-19 Cantor started FFIV a Buy with a $110 target. The Telco spending recovery is expected to drive FFIV to strong 2H results, and security is a growth driver for the Co. Government is expected to remain weak, but only accounts for 12% of revenues. FFIV generates 57% of sales from North America, 21% from EMEA, 15% from APAC and 7% from Japan. FFIV has 6.9% of its float short at 5.35M shares, up from 4.57M shares on 7/1, and at a 2 year high. FFIV shares have broken out of a large downward wedge and have now formed an ascending triangle with key resistance at $95, a breakout can target $105. On weakness shares should find support at $82.50, while a real bad report can see a return to $75. FFIV options are implying a 7.85% move, look fairly cheap compared to historic moves and prior implied moves. On 10-18 the Oct. 25th (W) 89/96 call spreads traded 1,000+ to open with November $75 put sales financing, but really no notable positions in OI.

FFIV

Earnings Date IV1 IV2

IV1/IV2

Ratio

Straddle

Price

Implied

Move

IV30/HV30

Ratio

Actual

Max

Move

Closing

Move Put/Call

23-Oct 78.10% 46.60% 1.68 $6.90 7.86% 1.40

24-Jul 54.40% 40.50% 1.34 $8.85 10.87% 1.50 13.96% 7.20% 0.61

24-Apr 44.65% 35.60% 1.25 $6.40 8.85% 0.67 12.37% 3.51% 0.86

23-Jan 53.40% 39.90% 1.34 $10.55 10.68% 1.70 8.66% 4.46% 0.69

Trade to Consider: Long the FFIV November $92.5/$100 call spread at $1.70 debit.

Amazon.com (AMZN) will announce earnings 10/24 after the close with the Street calling for $0.09 Loss in EPS and $16.77B in Revenues, and the FY14 outlook at $2.88/$90.4B. AMZN has closed higher 5 of its last 6 reports with an average max move of 8.75%. The $150B online retailer that is a major player in many secular growth markets trades 116.7X earnings, 2.24X Sales and 17.2X Book. On 10-18 UBS made a big call upgrading shares to Buy with a $385 target. On 9-23 Telsey Advisory raised its target to $400 on AMZN. Channel Advisor shows AMZN's SSS jumped 24% Y/Y in August and 26.5% in September, and overall Q3 SSS seen at 25.1% growth vs. 29% in Q2. AMZN has 2.2% of its float short at 8.1M shares, up from 7.15M shares on 7/1. AMZN shares have been in a channel up pattern since April 2012 and last week pushed up against resistance of that channel. A move lower on earnings should find support at $290 as a long term trend support level, while the 200 SMA is near $280. AMZN's last two strong trend moves have been 65 point moves, so off the recent $280 low this would target upside of $345 before shares top out.

AMZN

Earnings

Date IV1 IV2

IV1/IV2

Ratio

Straddle

Price

Implied

Move

IV30/HV30

Ratio

Actual

Max

Move

Closing

Move Put/Call

24-Oct 61.30% 35.45% 1.73 $21.50 6.54% 1.22

25-Jul 59.60% 35.62% 1.67 $20.10 6.59% 1.65 3.36% 2.83% 0.94

25-Apr 42.65% 32.50% 1.31 $22.85 8.32% 1.57 -7.96% -7.24% 0.75

29-Jan 58.86% 42.80% 1.38 $26.53 10.19% 1.56 9.16% 4.76% 1.10

25-Oct 85.00% 53.90% 1.58 $24.88 11.16% 3.41 7.08% 6.87% 0.79

Trade to Consider: Sell the AMZN Oct. 25th (W) $345/$295 Strangle and Buy the December $350/$290 Strangle for Net Debit of $5.25

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