Playing SHLD Earnings
Plus, RIMM, MOS, ESI, GRMN, DLTR, MELI, RIG, & FLR
Dear Bottarelli Research Member,
This morning, the SHLD March 95 Calls (O:SHLD 10C95.00) that we entered on February 17th for $3.90 ticked up to $4.50, good for a nice 15% gainer. But since hitting that high, the shares have drifted lower. So right now, we’re left with a choice: close out the SHLD position for a slight gain, or hold the calls going into this afternoon’s earnings announcement.
From a chart perspective, SHLD is laying a nice concrete base right at the $95.00 level. But in a secretive and under-reported event, SHLD is scheduled to report earnings after the bell today. I say this is a “secretive” report because SHLD does not even list this event on their company Web site, nor was it listed in Yahoo! Finance’s earnings roster (until this week). Based on this situation, I’ll offer you two choices. If you’re not willing to risk holding the calls going into earnings, close them out now for break-even (or a slight gain). But, if you are willing to hold the calls going into earrings, feel free to roll the dice and hope for the best. Other tactical scenarios include selling half of your calls now and holding the remainder into earnings, thus limiting your total exposure. Or, you may even decide to pick up one or two SHLD March 85 Puts (O:SHLD 10O85.00) for $0.86 as a protective hedge. Whatever you decide, I’ll continue to follow this play going forward. Overall, I’d lean towards selling half of your calls now and then holding the remainder going into earnings.
At the same time, Research in Motion (RIMM – NASDAQ) is noticeably weaker today on the news that the latest version of the Blackberry Storm is a “finicky gadget” that’s not nearly as compelling as other touch-screen devices like the iPhone or Motorola’s Droid. This is exactly my reasoning for entering the RIMM March 70 Puts (O:RIMM 10O70.00) on February 16th, and then adding to the position on February 18th. As it stands, we’re holding for an average entry price of $2.72, and today’s high hit $3.06. Since news like this could drag on RIMM for weeks, hold for more gains. A break below the 200-day moving average could help RIMM re-test $66.00 shortly.
Also noteworthy today is the continued upside move on our ESI March 105 Calls (O:ESI 10C105.00). After flipping from puts over to calls, ESI has continued to push higher. Let’s continue holding for a move to $107.50. If that breaks, then we’re into $112.00.
Also, don’t forget about our MOS March 60 Calls (O:MOS 10C60.00), which are doing a good job of holding their ground. If MOS can call the 50-day moving average a level of support, we’ll be in good shape.
And finally, we have two earnings plays for Wednesday working as well. Hold your DLTR March 50 Calls (O:DLTR 10C50.00) and DLTR March 49 Puts (O:DLTR 10O49.00) along with your GRMN March 33 Calls (O:GRMN 10C33.00) and GRMN March 32 Puts (O:GRMN 10O32.00). As you can see below, Dollar Tree has been range-bound while GRMN has rallied nicely leading into earnings.
Now, some of you have asked about earnings plays that don’t necessarily fall into my “ideal” category of strike skew, premium price cost, and earnings potential. Typically, I have the best success playing high-beta companies with $1.00 strike price increments and cheap option premiums. But that’s not to say that we still can’t profit off earnings plays that don’t fall into this framework. From a pure informational standpoint, here are three additional earnings candidates that you might consider.
Mercadolibre (MELI – NASDAQ): Reporting after today’s bell, today’s red candlestick isn’t painting a good picture. Bias down.
Transocean (RIG – NYSE): Reporting on Wednesday, RIG could be setting up for a breakout above the 50-day moving average. Bias up.
Fluor Corporation (FLR – NYSE): Reporting on Thursday, FLR has had a history of falling on earnings day, as engineering and infrastructure work keeps getting delayed. Bias down.
If any plays present themselves on these three, you’ll be the first to know. But until then…
Lock and load!
Sincerely,
© 2012 CSR Group, LLC. All rights reserved. Published in USA.
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