Premium Earnings 3-26-12: Walgreens, McCormick

• Posted by Greg Harmon
• on March 26th, 2012

Two names that report tomorrow morning make up today’s choices: McCormick, $MKC, and Walgreen, $WAG.

McCormick, $MKC

McCormick, $MKC, has risen in steps off of the August to October basing. Now it is breaking above the top from January at 52.25. The Relative Strength Index (RSI) is bullish, and rising and the Moving Average Convergence Divergence (MACD) indicator is positive but stalled. Both of these support further upside. This chart has a upward bias. There is a measured move to 55.50 above resistance and support lower comes at 51.50 and 51 followed by 50 and 49.60. The reaction to the last 6 earnings reports has been a move of about 2.5% on average or $1.28 making for an expected range of 51.60 to 54.20. The at-the money April Straddles imply a larger move of $3.50 by Expiry.

Trade Idea 1: Buy the April 55 Calls for $0.75.

Trade Idea 2: Sell the April 50 Puts for 50 cents.

Trade Idea 3: Buy the April 55/50 Bull Risk Reversal for 25 cents.

Walgreen, $WAG

Walgreen, $WAG, has been consolidating between 32 and 35 since October, after falling from a high at 44. The RSI is hovering around the midline while the MACD is near zero. This chart has a neutral bias, but short interest at over 5% could help it higher. Support lower comes at 32.50 and 31.75 followed by 30.40 and 29.50. Resistance above 35 is found at 35.65 and 36.90 followed by 38.30 and 39.50. The reaction to the last 6 earnings reports has been a move of about 5.8% on average or $1.95 making for an expected range of 31.60 and 35.51. The at-the money Straddles imply a similar move of $1.93 by Expiry.

Trade Idea 1: Sell the the April 31/36 Strangle for 41 cents.
Non directional

Trade Idea 2: Buy the April 34/35 Call Spread for $0.39.
With the tailwind of market running higher

Trade Idea 3: Sell the April 32 Puts for $0.34.

Trade Idea 4: Buy the April 34/35 Call Spread Risk Reversal selling the 32 Put for 5 cents.

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