Premium Earnings 6-7-12: Francesca’s Closet

• Posted by Greg Harmon
• on June 7th, 2012

One name that has had some interest and reports tonight, Francesca’s Holdings, $FRAN.

Francesca’s Holdings, $FRAN

Francesca’s Holdings, $FRAN, is moving higher off of a pullback to 22 and the 61.8% Fibonacci. Now following the Arc higher it has resistance above at 24.60, which it tagged today, and 26.60 before 27.70 and 28.75. Support below 21.80 comes at 19.90, 16.80 and 15.20. The Relative Strength Index (RSI) remains in bearish territory but is trending higher with a Moving Average Convergence Divergence (MACD) indicator that crossed positive and continues to trend higher. Short interest is elevated at 10%. The reaction to the last 3 earnings reports (it’s whole public life) has been a move of about 10.5% on average or $2.50 making for an expected range of 21.30 to 26.30. The at-the money June Straddles imply a larger move of $3.20 by June Expiry. The typical move has been a 15-20% drop on earnings lately so protection to 18 is a lot safer.

Trade Idea 1: Sell the June 17.5/30 Strangle for 35 cents.

Trade Idea 2: Buy the July 25/30 Call Spread for $1.75.

Trade Idea 3: Buy the June 25 Call for $1.00.

Trade Idea 4: Sell the July 17.5 Put for 60 cents.

Trade Idea 5: Buy the June/July 25 Call Calendar Spread for $1.50.

Trade Idea 6: Buy the stock and add a June 25/22.5 collar for 40 cents.
This give downside protection under 22.10 and a return of over 6% if called away.

With low liquidity and no clear view of their Fundamentals Idea 6 looks best to me.

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