Earnings season is winding down and most the big names are behind us, but two stocks worth watching ahead of their upcoming quarterly releases today are Stamps.com (STMP) and SolarCity (SCTY).
The first carries a large short interest at 16%, while SCTY is pushing a whopping 37% on the short side. It's not like the market is expecting small moves, though -- with STMP and SCTY both priced for around 18% gains.
Stamps.com has performed incredibly well of late following its earnings reports, up 10% or more each day following its past six quarterly releases. While my regression analysis and linear fit only focus on absolute terms, every one of Stamps.com's six post-earnings moves has been to the upside.
The last five moves exceeded 19%, and while the last post-report rally did "cool" a bit in percentage terms, the trend is still increasing:
The stock's R-squared is approaching 0.50, which might have some predictive qualities here. I'd give STMP about a 45% chance of close to a 25% pop post-earnings.
Conversely, the fact that five of the past six post-earnings moves have exceeded 19% makes this a scary name to try to sell premium into earnings. The stock's trend of huge post-earnings moves will alter at some point, but it's been painful so far if you've tried to anticipate this change.
As for SolarCity, that's recently joined the volatility parade led by Stamps.com. SolarCity was a small mover prior to the company's past two quarterly reports, but we've now had two post-earnings drops in a row of more than 20%.
I wouldn't quite call this a trend, but two such straight moves means more to me than a single one does. Solar City's R-squared has also jumped all the way to 0.60, so it feels like there's something to this growing trend:
If I had to bet which name was more likely to come in shy of the move the market expects, I'd lean toward SolarCity based on the fact we've only had two big moves over the past six reports.
However, it's impossible to ignore the fact that nearly 40% of the company's outstanding shares are short. Add in the fact the stock is extremely oversold and you have a set-up for a big move.
Of course, both of these names are extremely risky to play. Traders who like to try to "milk" a pre-earnings premium overnight should understand the odds aren't in their favor on these two stocks based on earnings projections, short interest and recent history.
That doesn't mean they're a slam dunk on the long side of volatility. But it does mean that their risk/reward ratios don't over the long run favor short-volatility players who repeatedly short names with similar patterns.