Premium Earnings 3-6-12
- Posted by Greg Harmon
- on March 6th, 2012
Pandora, $P, is testing resistance after rising from a retest of the 100 day Simple Moving Average (SMA). It printed a Spinning Top, possible reversal candle yesterday and is confirming it lower today at midday. There is support lower at 14 and 12.30 followed by 11.70, 10.90 and 9.80. Resistance higher comes at 14.75 and 15.80 followed by 17.10, 18.50 and 19.63. The Relative Strength Index (RSI) is bullish but turned lower while the Moving Average Convergence Divergence (MACD) indicator is positive and growing. This chart has an upward bias despite the pullback. Short interest at 4% makes it a little more interesting, but should have little impact. The reaction to the last 2 earnings reports has been a move of about 10.2% on average or $1.50 making for an expected range of 12.85 to 15.85. The at-the money March Straddles imply a larger move of $2.15 by Expiry next week. Implied volatility at 120% is high compared to the historical at 58%, and the April options at 80%. Activity today has favored the call side with over 2, 000 traded each in the March 12, 15 and 16 contracts each with large Open Interest. The March 12 Puts are also active with over 3,000 traded against 2,099 OI.
Trade Idea 1: Buy the March 15 Calls for 85 cents.
Trade Idea 2: Buy the March 15/16 Call Spreads for 35 cents.
Trade Idea 3: Sell the March 12 Puts for 20 cents.
Trade Idea 4: Buy the March 15/16 Call Spread Risk Reversal selling the 12 Puts for 15 cents.
Add the 10 Puts long for a nickel if margin is an issue.
Trade Idea 5: Buy the March 15/16/17 Call Butterfly for 25 cents.
Trade Idea 6: Sell the March 12/17 Strangle for 45 cents.
CIENA, $CIEN, has been falling from a top at 17.39, that closed the gap from July. Support lower comes at 13.35 and 12.40 followed by 10.95 and 10.22. Resistance higher is found at 14.10 and 14.60 followed by 15.35 and 16 before 16.80 and 17.39. The RSI is bearish and falling while the MACD is negative and growing more so. This chart is biased to the downside. This is over 15% short interest, though which could make a beat interesting. The reaction to the last 6 earnings reports has been a move of about 10.0% on average or $1.35 making for a range of 12.21 to 14.91 and the at-the money Straddles suggest a similar $1.50 move by Expiry. Implied volatility at 85% is elevated compared to the historical at 45% and the longer April options at 62%. Near the money 14 Calls and 13 Puts are the most active today, both with multiples of OI compared to today’s trades. The most interesting view in the options is the nearly 12,000 OI at the 16 and 17 Strike Calls, dwarfing all other OI. That activity took place a week or more ago as the stock was falling.
Trade Idea 1: Buy the March 13 Puts for 50 cents.
Trade Idea 2: Buy the March 13/12 Spread for 30 cents.
Trade Idea 3: Buy the March 13/12/11 Put Butterfly for 22 cents.
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Gregory W. Harmon CMT, CFA, has traded in the Securities markets since 1986. He has held senior positions including Head of Global Trading, Head of Product Development, Head of Strategy and Director of Equity. (More)
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