Earnings season is like Christmas for option traders, and it comes 4 times a year. We do a lot of earnings trades with my service and I have posted on my website many of the "Earnings Focus" stories for the major reports where I do a thorough analysis into earnings and provide directional and non-directional options trading strategies.
They can be found at this Link
I also have been putting together a nightly Earnings Snapshot email to subscribers with a more brief overview of the key upcoming earnings, and the best option strategy I am seeing to trade them, some directional, and others volatility strategies.
Here are the ones from this past week, a fairly good win rate:
Wednesday Night Report:
Decker's (DECK) closed down 4.75% on heavy volume with shares rejected at $97.50, a double top, with the potential to re-visit the double bottom at $77.50. Under Armour (UA) beat and raised in apparel and shares still sold off, so it will be an uphill battle for Deckers to react positively, coming off a weak report last quarter when shares were hit hard. The $3.54B footwear Co. is definitely a name to buy for the long term on weakness, shares valued fairly at 17X earnings, 0.97 PEG and 3.37X sales. There is also a 10.3% short float, 3.7 days to cover. Piper recently raised its target to $100, and Analysts are expecting strong International growth. There has not been a lot of notable options action, on July 13th 1,250 August $90 puts were bought at $2.85 that remain in OI.
Trade to Consider: Buy the DECK Aug. 90/85 Put Spread at $1.80 or Better
Expedia (EXPE) shares are in a strong trend and are flagging in a tight $29.50 to $30.70 range, not far from $32.50 and $35 resistance for all time highs. Shares are trading 14X earnings, 2.36X sales and 12.9X cash flow with a 10% short float, the top value in online travel stocks and a name people want to own to be part of the TripAdvisor spin-off later this year. Expedia has beaten Analyst estimates by an average of 13% the past 4 quarters. Benchmark raised its target to $34 this morning, seeing 15% y/y bookings growth, but does note costs rising. Expedia was alerted today with unusual options as more than 2,000 October $31 calls were bought at $1.55.
Trade to Consider: Long the EXPE Aug. 30 Straddle at $2.45 or Better (With 15 Days of Trading Remaining Shares Average 15% of Movement During these Expiration Cycles and the Straddle is Only at 8%)
Veeco Instruments (VECO) is a great value name at 10.27X earnings, 0.47 PEG, 1.55X sales and 2.3X cash value, so downside would appear limited but with orders likely being pushed into 2012 shares could get hit on guidance, and then be a great long term buy. There is a 25.78% short float or 7.4 days to cover, and shares have been sliding, currently with a bear flag set-up, and on a breakdown could target $32.50. JPM lowered its target and estimates on the increased risk of shipment delays to China, cutting target to $60 from $75, so still seeing value. VECO options have been very active including a purchase of 10,000 August $42 puts at $2.25 to open yesterday and 5,000 August $45 puts on July 5th. The options action has been bearish and the IV skew is steep. VECO has not been too wild post-earnings with less than 7% moves the past 5 quarters, although it often extends moves through the rest of the month.
Trade to Consider: Long the VECO Aug. 40/35 Put Spread at $1.75 or Better
KLA Tencor (KLAC) shares have been hanging fairly strong while other Semi's have crashed and will be down tomorrow due to LRCX's report. KLAC is one of the top values among large cap Semi's at 9.6X earnings, 0.69 PEG, 2.47X sales and 3.8X cash value. UBS raised to Buy with a $49.50 target on July 7th. LAM's (LRCX) outlook for chip equipment spending was weak and should impact KLAC's results. KLAC has only averaged around a 3.5% movement on earnings the last 8 quarters. Most of the Open Interest in KLAC is on the call side from buyers in August and September a few weeks ago. On Monday a trader sold 6,600 Dec. 50 calls to open at $1.45.
Trade to Consider: Sell the KLAC Aug. $45/$38 Strangle at $1.10 or Better
VeriSign (VRSN) is a name that hit my screen today as an overvalued Tech stock that could get hit on earnings. Shares of the $5.5B Co. trade 18X earnings, PEG 4.5, 8X sales and 43X cash flow, although cash rich trading 2.8X cash value. Shares have formed a Head and Shoulders topping pattern and a break of $32 would target a move to $27. July 22nd saw the most notable action with 700 of the Aug. 33 and 32 puts each bought offer side.
Trade to Consider: Long the VRSN Aug. $33 Puts at $1.20 or Better (Technicals and Fundamentals Point to Bearish View)
Other volatile movers include ACOM, NTGR, NETL, ARBA, CERN, N, and NXPI.
Tuesday Night Report:
Akamai (AKAM) reports Wednesday night and is coming off of 2 consecutive large gap down moves on earnings as its costs and competition rise, slowing earnings growth, and causing a re-valuation shares. Going back to March of 2010 shares broke out at $27.30 which is a level I see now as support, currently a falling wedge pattern with a double bottom at $29 that looks fairly clean and MACD and ADX with bullish crossovers this week. Shares have upside to $35 gap resistance, and downside to $27.50 in my view. At 17.45X forward earnings, PEG of 2, 5.4X sales and 28.6X cash flow, I would still consider shares rich on valuation with just 12.8% EPS growth seen next year, favoring a further pullback in shares. With narrow EPS beats the prior 2 quarters, Akamai could be set for a headline miss. Akamai shares have moved more than 13% in 6 of the last 8 reports. There are risks to guidance and results are likely to come in near the low end with a slowdown in media traffic for Q2, although another big move lower would immediately make it an attractive buyout target. Order flow has been mostly bullish in the calls the past week and there is a ton of open interest in both puts and calls. The largest trade recently was 1,000 August/November $26 calendar call spreads that traded at $0.98 yesterday, bearish as it looks for shares to head to $26. However, back on June 30th, 3,000 August $35/$28 bull risk reversals traded at a 10 cent credit.
Trade to Consider: Long the AKAM Aug. $31 Straddle at $3.30
Citrix Systems (CTXS) reports Wednesday night and shares are in a channel down pattern that eventually leads to $65, but shares are showing strong support at $72.50, just above its 200 day EMA and a re-test of the breakout move from April. Shares have downside to $65 while a move higher would likely find resistance at $80. Its closest peer in the virtualization market is VMware (VMW) which reported a strong quarter recently. Citrix trades 27.3X earnings, 7.2X sales and PEG of 3.17, another richly valued Tech Co. with a $14B market cap. Morgan Stanley was out with a note this morning that comparisons are tough but Q2 should be solid, but does see conservative guidance. Goldman also previewed the quarter this morning and did not see much reason to own shares into results. Citrix generally moves 6 to 10% on earnings, but last July shares moved 21.9%. There were sellers in the Aug. 75 puts today with 1,496 trading, and a buyer of 80 75/80 call spreads. In late June Aug. 80 puts were active with buyers as more than 4,000 accumulated, but now less than 3,000 in OI so some have taken profits. There was unusual buying in September 70/60 puts last week and Monday a trader bought 500 August 75/65 put spreads at $3.15.
Trade to Consider: Sell the August $80/$70 Strangle at a $3.25 Credit
Cliffs Natural (CLF) reports Wednesday night and the $14B Iron Ore Co. is the best value among all the metals stocks trading 6.5X earnings, 2.7X sales, 3X book, 6X cash and a PEG of 0.47. Shares recently triple topped at $102.50 of a 20 point horizontal channel, but have since pulled back to its 20 day EMA near $95. UBS started shares a Buy with a $122 target earlier this month. Cliffs has averaged around a 6.5% earnings move the past 6 quarters. On June 16th 1500 October 92.5/70 bull put spreads traded, and 1,000 October $100/$97.50 bull risk reversals traded July 7th. A big buyer stepped in today on weakness for more than 1,500 August $95 calls on the $3.75 offer, large bullish buyer.
Trade to Consider: Sell the August $100 Straddle at $8.65 (Bullish Bias Straddle) or Long the August/September $100 Calendar Put Spread at $1.55
Green Mountain Coffee (GMCR) reports Wednesday after the close and has made more than a 10% earnings move the last 7 quarters, and averaging a 21% move the past two. Shares are hanging near all time highs, consolidating above its 20 day EMA. Stifel had a note out recently cautious on K-Cup share losses to partners. Shares of the $13.84B Co. trade at an obscene 42X earnings, PEG of 3, 12.5X book and 7.25X sales. There is a 15.55% short float, 7.1 days to cover. On July 5th a trader bought 1,800 Aug. 80 puts, but went long stock, and July 6th saw sizable buying of 2,500 September $100 calls. A trader bought 900 September $110 calls at $2.30 on July 11th. Another 2,000 September $100 calls were bought July 18th. A trader bought 1,000 August $87.50/$82.50 put spreads at $1.14 on July 21st. Shares could see 75 on weakness or above 105 on strength.
Trade to Consider: August/September $110/$75 Double Calendar Spread at $1.80
Visa (V) will report Wednesday after the close and shares have consolidated under $80 since the big run-up on the debit card fee legislation. Now the company will be forced to deliver on earnings, and with growth slowing and costs rising shares are tough to add after the recent run. Shares trade 15.65X earnings, 8.6X sales and 2.83X book and we have recently seen large blocks of calls being sold with profit taking ahead of results. Some long term thinkers bought 950 March 2012 92.50 calls at $6.10 Monday. Street Analysts have been raising price targets, most near the $100 level.
Trade to Consider: Long the V July/Aug. $85 Calendar Put Spread at $1
Potash (POT) will report earnings Thursday before the open and will look to continue momentum seen in fertilizer stocks since Mosaic's (MOS) strong report. Shares are back near year highs and at resistance under $62.50. Shares have had less than 3.6% moves 3 of the last 4 quarters. Shares trade 15.4X earnings, 7.44X sales and 7.3X book, not a top value name in its industry and getting a bit rich. POT is a name that has been registering high on the call premium leader board the last couple weeks, bullish flow in the options. Today, more than 2,800 of the July 62.50 weekly calls were bought to open while 13,727 August $60 calls sit in Open Interest. On July 10th more than 2,500 December $62.50 calls were bought to open, so the longer term outlook has a bullish bias also. Potash looks to be starting a fresh trend higher after a recent breakout of a descending triangle, and may make a run up to those 2008 highs just under $80 by year end, although a short term pullback to $58.50 to form a cup and handle would be welcomed.
Trade to Consider: Ratio Calendar Spread: Sell 2X August $65 Calls at $0.74 to Buy 1X September $62.50 Call at $2.40, Net Debit $0.92
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