Investors of Bumble Inc. (BMBL) have kept the share prices range bound ahead of the company's fiscal second quarter earnings announcement. At first glance, it appears that option traders are positioned for a negative move, as the number of put options in the open interest is rising. The unusual option activity could create a strong downward trend in the price action if BMBL delivers a negative earnings result.

Put option numbers are growing in the open interest for BMBL, and option premiums are unusually high right now. Trading volumes indicate that traders have been buying puts and selling calls in anticipation of an unfavorable earnings report. Unwinding these bets could result in unexpected upward pressure on the share price of Bumble.

Correctly predicting the direction a stock will move after earnings is difficult. However, a comparison between the stock's price action and option activity shows that, if BMBL delivers a positive report, the company's share price could rise significantly, moving above the 20-day moving average after the announcement. This could happen because options are priced for a move downwards, but unforeseen good news could catch traders off guard and create a rapid rise in share price.

Key Takeaways

  • Traders and investors have kept the share price range bound headed into the earnings report.
  • The share price has recently closed below its 20-day expected moving average.
  • Call and put pricing is predicting a stronger move to the downside.
  • The volatility-based support and resistance levels allow for a stronger move downwards.
  • This setup creates an opportunity for traders to profit from an unexpected earnings outcome.

A comparison between the details of both stock price and option behavior can grant chart watchers valuable insight; however, it is necessary to understand the context in which this price behavior took place. The chart below illustrates the price action for BMBL shares as of Aug. 10. This created the setup leading into the earnings report.

Earnings pricing for Bumble Inc. (BMBL)

Current Trends

Over the past month, the trend for BMBL stock has the share price falling from the middle of the volatility range to the lower extremes in mid-July, before rising back toward the 20-day moving average in early August. In this time period, the lowest BMBL share price was about $45 in mid-July, whereas the highest share price was over $53 in early July. The price closed in the middle region depicted by the technical studies on this chart.

The studies are formed by 20-day Keltner Channel indicators. These depict price levels that represent a multiple of the Average True Range (ATR) for the stock. This array helps to highlight the way the price has fallen below the 20-day moving average in the week before earnings. This price move from BMBL shares implies that investors' confidence is waning as the earnings report approaches.

Tip

The Average True Range (ATR) has become a standard tool for depicting historical volatility over time. The typical average length of time used in its calculation is 10 to 20 time periods, which includes two to four weeks of trading on a daily chart.

In this context where the price trend for BMBL has recently fallen below its 20-day moving average, chart watchers can recognize that traders and investors are expressing growing concern going into earnings. It's notable that, in the week before earnings, BMBL's share price has slowly crept up back toward its 20-day moving average. That makes it important for chart watchers to determine whether the move is reflecting investors' expectations for unfavorable earnings or not.

Option trading details can provide chart watchers with additional context to assist them in forming an opinion about investor expectations. Recently, option traders are favoring puts over calls by a large margin. On Monday, Aug. 9, there were over 10,000 puts traded as opposed to nearly 3,900 calls. Normally, this volume indicates that traders are feeling bearish toward the earnings report.

Tip

The Keltner Channel indicator displays a set of semi-parallel lines based on a 20-day simple moving average and an upper and lower line. Because the upper lines are drawn by adding a multiple of ATR to the average and the lower lines are drawn by subtracting a multiple of ATR from the average price, then this channel indicator makes for an excellent visualization tool when charting historical volatility.

Trading Activity

Option traders recognize that BMBL shares are in an average range and have priced their options as a bet that the stock will close within one of the two boxes depicted in the chart between today and Aug. 13, the Friday after the earnings report is released. The green-framed box represents the pricing that call option sellers are offering. It implies a 33% probability that BMBL shares will close inside this range by the end of the week if prices go higher. The red box represents the pricing for put options with a 29% chance if prices go lower on the announcement. 

It's necessary to note that the open interest featured over 31,000 calls compared to nearly 29,000 puts, demonstrating the bias that option traders had, as traders favored calls over puts. But remember, trading volume on Monday skewed towards puts at a rate of over 2.5-to-1, depicting how the recent activity is trending. However, because the call box and put box are relatively equal in size, it tells us that the growing percentage of put options has only mildly skewed expectations lower. A much more complacent outlook is implied.

Option pricing for Bumble Inc. (BMBL)

The purple lines on the chart are generated by a 10-day Keltner Channel study set at four times the ATR. This measure tends to create highly correlated regions of strong support and resistance in the price action. These regions show up when the channel lines make a noticeable turn within the previous three months.

The levels that the turns mark are annotated in the chart below. What is notable in this chart is that the call and put pricing are in such a close range with plenty of space to run either way, but with more room to the upside. This suggests that option buyers don't have a strong conviction about how the company will report, even though recent put volumes outweigh call volume. Although investors and option traders do not expect it, a surprising report could push prices dramatically higher or lower.

Volatility pattern for Bumble Inc. (BMBL)

These support and resistance levels show a large range of support and resistance for prices. As a result, it is possible that any news, surprisingly bad or good, will catch investors by surprise and could generate an unusually large move. After the previous earnings announcement, BMBL shares fell by 14.33% the day after earnings before gradually rising the following week. Investors may be expecting a similar move in the price after this announcement. With plenty of room in the volatility range, share prices could rise or fall more than expected.

Market Impact

Bumble doesn't have a noticeably large market cap, so earnings results most likely won't have a direct impact on indexes. No matter what the report says, it could have an effect on stocks in the software application industry. A positive report could lift other stocks in the sector such as Smartsheet Inc. (SMAR), Vimeo, Inc. (VMEO), or Match Group, Inc. (MTCH). It could also affect exchange traded funds (ETFs) such as the SPDR S&P Internet ETF (XWEB), the Vanguard Mid-Cap ETF (VO), or the Global X Social Media ETF (SOCL).