With earnings season winding down, the number and quality of possible earnings trades have been dwindling. Every Sunday night, we look at all of the companies reporting earnings for the upcoming week to see if there is a possible call or put option trade as a way to play the stock’s move.
Of course, there are a number of other factors that need to be considered when deciding to go long or short a stock, especially around earnings. Our main goal is to find stocks that are likely to move 5%-10% and use options to play the move to make a 100% return.
Option premiums can also get “inflated” on many high-beta stocks so it is also important not to overpay.
Some of the stocks we said to watch this week in our Weekly Wrap included Chef’s Warehouse (CHEF, $22.27, down $0.31) and PetSmart (PETM, $67.11, up $0.45) as short candidates and Foot Locker (FL, $42.38, up $0.01) as a long candidate.
Shares of CHEF and PETM have trended lower after their earnings announcements and FL will report their numbers ahead of Friday’s open.
We like the Foot Locker March 43 calls (FL140322C00043000, $1.00, down $0.05) as they have gained over 30% this week and could double if the company beats Wall Street’s estimates (and raises guidance). However, we will likely use the weather excuse to sit on the sidelines instead of taking this trade.
One trade we missed, and it is on a stock we have covered for years, was Staples (SPLS, $11.45, down $1.96). We have often shorted this name in the past and we had a feeling they would come up short when they confessed their numbers.
Staples reported full year earnings of $1.16 a share versus expectations for $1.22 a share. Sales were down nearly 11% year-over-year and the company said it will close 225 stores in an effort to concentrate more on internet sales.
The Staples March 12 puts (SPLS140322P00012000, $0.70, up $0.53) have zoomed over 300% after closing at 17 cents yesterday. This would have been a GREAT lottery trade as every $17 is now worth $70.
In other words, you could have bought 10 contracts yesterday for $170 and today they would be worth $700. A 100-contract trade would have turned $1,700 into $7,000 overnight.
As you can see, you don’t need to risk a lot of money to trade options as they are cheaper than buying a stock outright.
We feel jaded we missed this trade but there will be others coming up.
April is the next BIG earnings season as most companies wrap up their current quarters at the end of this month and will start to report their numbers the second week of next month.
We do have more good news from a current earnings trade that continues to perform well. Shares of World Wrestling Federation (WWE, $29.73, up $2.63) have been surging all week and have moved from just under $23 and are now pushing $30! With today’s surge, we are ringing the register on another quarter of the trade as it is now up 225%!
As we head from desk to press, the Dow is up 85 points to 16,445 while the S&P 500 is higher by 7 points to 1,881. The Nasdaq is gaining 10 points to 4,368 and the Russell 2000 is advancing a point to 1,207.
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