PLAY: Buy the VMW February 45 Calls (VMW BI) and the VMW February 43 Puts (MKT NH) at market, good for the day. The total basket should cost around $4.00. Do not place a sniper sell or stop limit on either position.
Dear Bottarelli Research Member,
First and foremost, congratulations on a nice comeback today. On a day when the Dow is down over 200 points, it’s nice to lock in two winners — 39.13% on our STX February 19 Calls (STX BY) and STX February 17 Puts (STX NS) and 31.25% on our FAZ February 17 Calls (FEW BQ).
As it stands right now, I’d like to go into tomorrow with our current ledger, which includes our two earnings-based plays on WDC and HOG combined without our downside put play on IOC. But while we have a minute, I’d like to set the table for next week’s earnings. As you’ll see, we have a solid lineup of play candidates. In fact, we’ll actually go ahead and get positioned in Monday’s top earnings play candidate today.
Below, I’ve listed the high-beta earnings for Monday, Tuesday, and Wednesday. Just so you’re clear, “beta” is a measure of the volatility of a security in comparison to the market as a whole. Therefore, when it comes to earnings strangles, it’s absolutely necessary to play only the high-beta names to ensure that we’ll witness a move substantial enough for us to show a decent return.
Typically, I like to see a beta reading of twice the general market, which puts the odds for a large move (up or down) in our favor. Listed below are the high-beta companies set to report earnings. The companies that I’ve listed in bold represent the best candidates, in my opinion, for an earnings strangle. This opinion comes after a review of their options string, strike price skew, and the cost of owning both sides of the play.
MONDAY:
- AK Steel (AKS – NYSE), before the open
- Amgen (AMGN – NASDAQ), after the close
- Apple (AAPL – NASDAQ), after the close
- VMware (VMW – NYSE), after the close
TUESDAY:
- Ashland (ASH – NYSE), before market open
- DeVry (DV – NYSE), after the close
- Energizer (ENR – NYSE), time not supplied
- Gilead Sciences (GILD – NASDAQ), after the close
- Jacobs Engineering (JEC – NYSE), before the open
- Nucor (NUE – NYSE), time not supplied
- Yahoo (YHOO – NASDAQ), after the close
WEDNESDAY:
- Abbott (ABT – NYSE), before the open
- Allegheny Technologies (ATI – NYSE), before the open
- Caterpillar (CAT – NYSE), after the close
- Green Mountain Coffee Roasters (GMCR – NASDAQ), after the close
- Netflix (NFLX – NASDAQ), after the close
- Boeing (BA – NYSE), after the close
The more I study today’s chart formation, the more I think we have an opportunity to move into Monday’s top candidate, VMware (VMW – NYSE).
In case you’re not familiar with VMW, they provide “virtualization solutions” that enable you to run virtual machines on your desktop. One of their top virtualization products, for example, is used on Intel-based Apple Macintosh computers.
As you can see from the chart, VMW is pulling right back to its 50-day moving average. With earnings set for Monday, we could see a rally leading into this release, followed by a sell-off after the numbers are out. Or heck, it could be the other way around. In either case, let’s get positioned now!
PLAY: Buy the VMW February 45 Calls (VMW BI) and the VMW February 43 Puts (MKT NH) at market, good for the day. The total basket should cost around $4.00. Do not place a sniper sell or stop limit on either position.
And as always…
Lock and load!
Sincerely,
