Premium Earnings 3-8-12

• Posted by Greg Harmon
• on March 8th, 2012

I looked at 3 names today that kids are concerned with and that report tonight, Aeropostale, $ARO, Smith & Wesson, $SWHC, and Zumiez, $ZUMZ.

Aeropostale, $ARO

Aeropostale, $ARO, has been rising off of a bottom in September and pushed up against resistance from the gap down in May at 19.30. Resistance is found higher at 20.55 and 21.94 followed by 23.30 and 24.90. Support is at 17.90 and 17.10 followed by 16.10 and 14.80 before 13. The Relative Strength Index (RSI) is bullish and strong while the Moving Average Convergence Divergence (MACD) indicator is positive and growing. This chart has a upward bias. Short interest at 11% makes it more interesting. It also may help that their competition, $AEO and $BKE both moved higher after reporting. The reaction to the last 6 earnings reports has been a move of about 10.5% on average or $2.00 making for an expected range of 17.25 to 21.25. The at-the money March Straddles imply a similar move of $1.60 by Expiry next week. Implied volatility at 74% is high compared to the historical at 37%, and the April options at 50%. Volume in the options is thin, so nothing complex and small size.

Trade Idea 1: Buy the March 20 Calls for 45 cents.

Trade Idea 2: Buy the March 20/21 Call Spread for a 30 cents.

Trade Idea 3: Buy the Stock and sell the April 20 Calls to fund the purchase of the March 19 Puts.
A collar on the stock with 5.2% upside for a month and immediate downside protection.

Smith & Wesson, $SWHC

Smith & Wesson, $SWHC, has been banging it since we played earnings in December, consolidating now in a range from 5.10 to 5.52. Support lower is found at 4.88 and 4.60 followed by 4.51 and 4.33. Resistance on a break higher comes at 5.82 and 6.12 followed by 6.38, all from 2009. The RSI is falling but bullish while the MACD is negative but improving. This chart has a neutral bias, but with short interest at a bit over 6%. The reaction to the last 6 earnings reports has been a move of about 9.9% on average or $0.53 making for an expected range of 4.88 to 5.94. The at-the money March Straddles imply a similar move of $0.60 by Expiry next week. Implied volatility at 90% is high compared to the historical at 35%, and the April options at 48%. but that is probably meaningless as there is no volume yet in this name. Very thin. Only 2 thoughts with options.

Trade Idea 1: Buy the April 6 Calls for 20 cents.

Trade Idea 2: Buy the Stock and sell April 6 Calls for 5.32.
The Buy-Write has a maximum return of 12.7%. If you add the April 5 Puts for 20 cents this is reduced to 8.7% but gives downside protection.

Zumiez, $ZUMZ

Zumiez, $ZUMZ, has been consolidating after making a Double Top last week. It has higher lows and higher highs getting there as well. There is no resistance above the Double Top at 33.10, but some at 31.80 on the way. Support lower comes at 30.80 and 29.85 followed by 28, 27.13 and 26.10 before the gap lower to 24. It also has almost 20% short interest to prop it up on a beat. The RSI is bullish and holding while the MACD has turned negative. This chart is biased to the upside slightly. The reaction to the last 6 earnings reports has been a move of about 8.0% on average or $2.50 making for a range of 28.65 to 33.65 and the at-the money Straddles suggest a smaller $1.60 move by Expiry, but are pretty illiquid. Implied volatility at 90% is elevated compared to the historical at 42% and the longer April options at 57%, but little volume in this name also. Small size if anything. Same category as $ARO, $AEO and $BKE though.

Trade Idea 1: Buy the April 35 Calls for 95 cents.

Trade Idea 2: Sell the April 25 Puts for 45 cents.

Trade Idea 3: Buy the April 35/25 Bull Risk Reversal for 50 cents.

Trade Idea 4 Buy the Stock and sell April 35 Calls to buy the March 30 Puts.
A near free collar on the stock with 16% upside for a month and immediate downside protection.

I will be traveling this afternoon and have limited availability tomorrow. I will get to questions but may not have immediate access to charts to answer questions.

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