Market Down on Potbelly (POT) Tuesday
Futures were up after midnight and ahead of the overseas markets opening but turned negative ahead of Wall Street’s open. Over the weekend, I discussed the importance of the bulls getting a Monday win on the Dow followed by another Terrific Tuesday session. So far, not so good. I mentioned a positive Tuesday close would be bullish for a continued push to fresh all-time highs and to the top of the trading ranges for the major indexes but today’s action is pushing the indexes back into their yearlong trading ranges.
The rest of the week is light on economic news so the focus will fall squarely on earnings and possible geopolitical events. Fed Chairwoman, Janet Yellen will be speaking on Wednesday and her comments could help or hurt the bullish case for a continued rally.
As far as earnings, one trade that caught my attention was Potbelly (PBPB, $17.00, down $0.07) as the company will announce earnings after the close.
The 52-week high is just south of $34 and shares have lost half their value from the peak. Potbelly is a recent 2013 IPO that has beat estimates its first 2 quarters as a publicly-traded company. If they miss expectations, shares could fall to the low teens. If they beat again and raise guidance, shares could make a run past $20 as the shorts run for cover.
The June 17.50 calls (PBPB140621C00017500, $0.95, down $0.10) and the June 15 puts (PBPB140621P00015000, $0.60, up $0.10) could be used to play as a strangle option trade to play a 5%-10% move in the stock. The total cost of the trade would be $1.55 at current levels.
The breakeven points are roughly $19 and $13.50 by mid-June, technically. There could be a possible $5 move over the next 30 days. On the earnings announcement, shares could move $2-$3.
As we make the turn, the Dow is lower by 82 points to 16,448 while the S&P 500 is declining 7 points to 1,877. The Nasdaq is off 21 points to 4,114 and the Russell 2000 is down 7 points to 1,118. The VIX is at 13.33, up 0.04.
Subscribers, hit the Members Area as there are two New Trades I’m recommending.