Schlumberger Limited Slumps After Failing to Exceed Analysts' Elevated Expectations

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Schlumberger Limited ( SLB ) reported its second-quarter earnings this morning. Although the oilfield services sultan increased its quarterly profit by 33%, SLB's per-share profits didn't impress analysts. Specifically, SLB's profit of 68 cents per share just met the consensus estimate, while in the past four quarters, the stock's per-share profit has surpassed estimates. Adding to the heightened expectations for SLB was a blowout report from sector peer Halliburton Co. ( HAL ) on Monday.

Technically speaking, SLB could have used a post-earnings boost. The stock is down 5.8% so far this year, underperforming the broader S&P 500 Index ( SPX ) by eight percentage points in the last 20 sessions alone. In fact, since the "flash crash" in May, SLB has been trapped beneath its 20-week moving average, which has formed an impenetrable ceiling for the equity.

Weekly Chart of SLB Since May 2010 With 20-Week Moving Average

Option players seem to have taken note of the stock's poor performance of late, as indicated by SLB's Schaeffer's put/call open interest ratio ( SOIR ) of 0.84, in the 96th annual percentile. In other words, short-term traders have been more bearishly aligned toward SLB just 4% of the time during the past year.

In the same bearish vein, short interest jumped 7.5% during the past month, to now account for 4.5% of the equity's total available float. At SLB's average daily trading volume, it would take roughly a week to unwind all of these bearish bets, should the stock begin to rebound.

However, option players don't seem worried about SLB rebounding, as today's option activity has been quite bearishly oriented. Roughly 10,000 puts had traded by midday -- double SLB's expected daily put volume.

The August 60 put has been most popular, with 3,581 contracts traded at this strike -- 85% at the ask price, revealing they were likely bought. There are roughly 28,000 contracts currently open at this strike -- home to peak put open interest for the August series -- making it difficult to definitively say whether today's activity involves newly opened positions. However, with SLB trading at $58.41, these puts are comfortably in the money.

Bearish bettors have also appropriated call options today, as evidenced by one trader's initiation of a bearish call spread. Early this afternoon, 286 August 60 calls, marked "spread," traded at the bid price, while 286 August 65 calls, also marked "spread," changed hands at the ask price. Assuming these contracts were newly added, it seems this trader opened a short call spread. Essentially, this trader wants SLB to remain beneath the $60 level until August expiration, rendering the sold contracts worthless, and allowing the speculator to keep the credit received at initiation.

With the company failing to live up to expectations this morning, as well as its lackluster technical performance, option players' bearish outlook for SLB doesn't seem too far off base. Furthermore, with SLB gearing up for another rejection from its 20-week trendline, the stock could actually exceed option players' bearish hopes for the near term.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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