The options market can provide clues to future stock movements. Rebecca Darst, equity options analyst at Interactive Brokers, told CNBC on Tuesday what the options market is saying about companies that are set to report this week.
Regional Bank Volatility
Volatility in regional banks, according to Darst, could be an indicator that the credit crunch is far from over.
“With two major reports from super regional banks, Wachovia and Wells Fargo later this week due to report, we’ve seen a real knock-up effect in implied volatility in these smaller regional banks,” said Darst.
“Specifically in Colonial Bancgroup , this is a stock that really hit our scanners yesterday, a 75 percent spike in implied volatility…they’re not due to report earnings until next Monday, but their shares hit a new 52-week low yesterday down five percent at $8.85."
Darst said this is a sign that options traders are positioning themselves for a further slump.
The GE Effect
The most conspicuous fallout from General Electric’ssurprisingly poor earnings announcement on Friday was in Caterpillar , according to Darst.
“The company was out with, as recently as last month, some very bullish guidance.
"It announced it might raise prices on some of its products, and its shares moved higher on those announcements, but with GE suddenly out of the gates, it sort of struck the fear of God into a lot of these options traders, and suddenly these very diversified multinational companies could no longer maintain safely ensconced in international exposures -- and I think that sent a lot of options traders looking for a put protection.”
Coca-Cola: The Real Thing?
Coca-Cola reports earnings tomorrow, and Darst said she’s not expecting any surprises from the announcement.
“The options market is currently pricing in only about a three percent move…Options traders continue to hold onto the fact that this a company that gets three quarters of its revenues from outside the United States, a lot of emerging markets exposure, a lot of imperviousness to the weak dollar; I think that’s going to help it.”
No disclosure information was available for Darst or her firm.