Premium Earnings 2-8-17: Coca-Cola and Twitter

Two names today that report before the open tomorrow, Coca-Cola, $KO, and Twitter, $TWTR.

Coca-Cola, $KO

Coca-Cola, $KO, started lower in July with a gap down following their earnings report. It found a bottom at the start of December, printing a Hammer reversal candle and then confirming it higher. Since then it has bounced against resistance at 42.15 and fallen back to higher lows, creating a rounded bottom and short term ascending triangle. A break of the triangle targets a move to 44.30. Into earnings it is at resistance and has a RSI that is rising in the bullish zone, while the MACD is rising after crossing up. There is support lower at 41.60 and 41.20 followed by 40.80 and 40. There is resistance at 42.15 and 43 followed by 43.75 and 44.30 then a gap to fill to 44.85 and 45.90. The reaction to the last 6 earnings reports has been a move of about 2.65% on average or $1.15 making for an expected range of 40.85 to 43.15. The at-the money February 10 Expiry Straddles suggest a smaller $0.82 move by Expiry with Implied Volatility at 31% above the March at 13%. Short interest is low under 1%. Open interest is focused from 41 to 42 on the Put side. On the Call side it is found from 41.50 to 43 and larger.

Trade Idea 1: Buy the February 10 Expiry 42/43 Call Spread for $0.33.

Trade Idea 2: Buy the February 10 Expiry 42/43/44 Call Butterfly for $0.25.

Trade Idea 3: Buy the February 10 Expiry/March 43 Call Calendar (19 cents) and sell the February 10 Expiry 41 Put for 8 cents.

Trade Idea 4: Buy the February 10 Expiry 42/41.5 1×2 Put Spread for free.

#1, #2 and #3 give the upside with #3 using leverage and may put you in the stock at 41. #4 gives the downside and may put you in the stock at 41. I prefer #3 or #4.

Twitter, $TWTR

Twitter, $TWTR, ended its fall in February 2016 and has moved sideways in a broad channel since. From last October it has narrowed that channel to a less than $4 range. into earnings it is rising towards the top of the narrow channel and has a RSI that is in the bullish zone, with a MACD that is rising. There is support lower at 17.90 and 17.50 followed by 16.20 and 15.30 then 14. There is resistance above at 19.50 and 20.70 then 21.45 and 23 before 23.75 and 25. The reaction to the last 6 earnings reports has been a move of about 8.75% on average or $1.60 making for an expected range of 16.60 to 20. The at-the money February 10 Expiry Straddles suggest a similar $1.65 move by Expiry with Implied Volatility at 145% above the March at 55%. Short interest is elevated at 7.2%. Open interest on the Put side builds from 15 to 17 then tails off. On the Call side it is much bigger, and builds from 17 to 18.5 then sees lower peaks at 19, 20 and 21.

Trade Idea 1: Buy the February 10 Expiry 19/20/21 Call Butterfly for 15 cents.

Trade Idea 2: Buy the February 10 Expiry 18.5/20 Call Spread for 45 cents.

Trade Idea 3: Buy the February 10 Expiry/March 20 Call Calendar ($0.40) and sell the February (monthly) 17 Put for free.

Trade Idea 4: Buy the February 10 Expiry 18/17 1×2 Put Spread for 13 cents.

Trade Idea 5: Sell the February 10 Expiry 16.5/20 Strangle for a $0.44 credit.

#1, #2 and #3 give the upside while #3 looks longer and may put you in the stock at 17 next week. #4 gives the downside with leverage and a possible entry at 16. #5 is profitable on a close from 16.06 to 20.44 at Expiry. I prefer #1 or #3.

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The information in this blog post represents my own opinions and does not contain a recommendation for any particular security or investment. I or my affiliates may hold positions or other interests in securities mentioned in the Blog, please see my Disclaimer page for my full disclaimer.

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