Premium Earnings 8-28-12: Heinz and The Fresh Market
- Posted by Greg Harmon
- on August 28th, 2012
Heinz, $HNZ, broke out of a rising channel and took of like a missile today ahead of earnings. The target for the channel break is 59.25. There is no resistance higher. It has a Relative Strength Index (RSI) that is bullish and now overbought near 80, with a Moving Average Convergence Divergence (MACD) indicator that is positive and growing. Both support more upside but the RSI suggest a pullbakc or consolidation likely soon. There is support lower at found at 56.50 and 55.80 followed by 55 and 54.25. The reaction to the last 6 earnings reports has been a move of about 1.95% on average or $1.13 ($1 less than today’s move pre-announcement) making for an expected range of 57 to 59.25. The at-the money Straddles suggest a roughly $3.00 move by Expiry with Implied Volatility at 15% in line with the historical at 11% and October at 15%.
Trade Idea 1: Buy the September/October 60 Call Calendars for $0.20.
Trade Idea 2: Sell the September/October 55 Put Calendars for $0.20.
Trade Idea 3: Combine #1 & #2 for free.
plays a short term pullback and then continued higher.
Trade Idea 4: Sell the September 55 Straddle for $3.50.
looking for a pullback or stall
Trade Idea 5: Sell the September 60 Straddle and buy 2x the September 55 Puts for $2.25.
looking for a pullback, but with upside protection to 62.25, 6.8% higher.
I will go with #3
The Fresh Market, $TFM
The Fresh Market, $TFM, is is consolidating at 62 with very tight Bollinger bands heading into earnings. It has a RSI that is bullish and leveling with a Moving Average Convergence Divergence (MACD) indicator that is negative but shallow and holding. There is support lower at 58.84 and 56 followed by 54.25 and 51.20. Also notice how the rising trend line support and the 50 and 100 day Simple Moving Average (SMA) have played roles in the past. The reaction to the last 6 earnings reports has been a move of about 9.0% on average or $5.50 making for an expected range of 55.70 to 66.70. The at-the money Straddles suggest a $6.60 move by Expiry with Implied Volatility at 50% in line with the historical at 46% and above the October at 37%. This name is thin in options so play light and expect short options to be caleld away/put to you.
Trade Idea 1: Buy the September/October 65 Call Calendar for $0.90.
Trade Idea 2: Sell the September 55 Put for $1.00.
Trade Idea 3: Combine #1 & #2 for a small credit.
I sold Puts earlier and will likely overbuy Call Calendars
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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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