Did traders fade earnings rally?

Thursday morning, a company that released earnings after the bell on Wednesday was trading roughly 15% higher, reversing a sharp pullback that had unfolded in the days leading up to the announcement.

That company was not Nvidia (NVDA). Well, NVDA also fit that description, but in this case we’re going to focus on medical device maker Tandem Diabetics (TNDM), which rallied nearly 20% in early trading yesterday:

Beyond their shared earnings dates and immediate price action, the similarities between the two stocks quickly dwindle. Unlike NVDA, which blew past its headline earnings and revenue numbers, TNDM missed its targets by a fairly wide margin.¹ The company did, however, potentially surprise the Street with its forward guidance, which was well above estimates.

If that optimistic projection was responsible for TNDM’s intraday rally, options activity provided a new wrinkle. While NVDA’s options volume on Thursday wasn’t particularly elevated, TNDM appeared on the LiveAction scans for unusual put volume and highest put-call ratios, with puts trading at nearly 42 times their average daily rate. The biggest position was 5,300 contracts in the slightly out-of-the-money March $25 puts:

Given that volume was significantly larger than the contract’s existing open interest (OI), it’s likely that a significant chunk of it consisted of traders getting into the market. And while there are two sides to every trade, that means at least some traders were interested in buying a significant number of put options as the stock made its second-biggest up day of the past year.

Market Mover Update: Energy was one of the weakest sectors in 2023, and crude oil’s sell-off toward the end of the year didn’t help. But since falling roughly 20% between mid-September and mid-December, April WTI crude oil futures (CLJ4) have rebounded more than 13%:

Recently, though, the market has consolidated at a resistance level in the vicinity of multiple highs ($78-$79) from the past three months. Breakout traders likely took note of Thursday’s push toward the top of the consolidation, with the market closing at its highest level since early November.

So far, Yeti (YETI) has moved in line with its tendency to continue declining after a sharp earnings sell-off. At yesterday’s low, the stock had fallen an additional 10% since last Thursday’s 14% drop (see “Options activity highlights earnings pattern”).

Today’s earnings include: Bloomin' Brands (BLMN), RB Global (RBA).

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¹ StreetInsider.com. Tandem Diabetes (TNDM) Misses Q4 EPS by 19c, provides guidance. 2/21/24.