Trade Review: Buffalo Wild Wings

Most traders that I talk with put on a trade with a plan that goes something like this. “Buy/Sell XYZ on a break of the trigger with a stop 2% away. Take off some as it moves through this level or reverses….” Most of my trades are like that too. But once in a while it makes sense to have a more detailed plan. The Earnings play for Buffalo Wild Wings was one of those time. This is part of what I presented to my premium users yesterday:

Buffalo Wild Wings, $BWLD

Buffalo Wild Wings, $BWLD, has moved lower out of an expanding wedge following the gap up from last earnings (we killed that one!). There is support lower at 82.80 and 80.75 followed by 70. Resistance on a move back higher comes at 85.5, 88.77 and 93.10. The RSI is into bearish territory and trending lower with a MACD that is negative but stalled. A downward bias from the chart, but mind the 16% Short interest. The reaction to the last 6 earnings reports has been a move of about 7% on average or $5.80 making for an expected range of 77.10 to 88.70. The at-the money Straddles imply a larger move of $9.00 by May Expiry. I expect a pullback to move higher by June.

Trade Idea 5: Selling the June 70 Puts for $1.10 and if does fall tomorrow look to buy the Buy the June 80/85 Call Spread

I will be doing #5

Almost immediately I got a comment asking why I would do trade #5 if I thought the stock would fall. Why not wait until after earnings. My reply was, in case I am wrong. I sold the June puts and collected $1.25, ready to wait until the morning to see the reaction and determine if it would warrant a long call spread. Happy to collect $1.25 if it moved higher, and comfortable with the 70 level as support. It was a pleasant surprise to see them report earnings before the close. The stock did drop immediately to 75 and then bounced. After several minutes it seemed it would hold and consolidated between 77.50 and 78.50 so it warranted part two of the plan buying the June 80/85 call spread. What was offered at over $2.50 earlier was now only $1.65. In for a net cost of 40c. As it rode higher on Wednesday I started to take the trade off. June was way too long to hold this. With the Call Spread back near 2.50 it became a risk reward trade off. Did it make sense to risk $2.50 to make $2.5 more a month from now. My answer was no. When it moves my way I take profits maybe too quickly some times. This one worked out well. Netting $1.37 in profits or 342% for one day exposure. Looking at the risk reward ratio another way, I booked annualized 124830% return versus a maximum of 8395% if it made it to the full $5 on the call spread at June Expiry. I left some on the table. It is not always about more money but sometimes about smart decisions.

If you like what you see above sign up for deeper analysis and trading strategy by using the Get Premium button above. As always you can see details of individual charts and more on my StockTwits page.

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.

blog comments powered by Disqus
Dragonfly Caps Blog