Premium Earnings 6-20-12 Bed, Bath & Beyond and Red Hat

• Posted by Greg Harmon
• on June 20th, 2012

Two names that report tonight, Bed, Bath & Beyond, $BBBY, and Red Hat, $RHT.

Bed, Bath & Beyond, $BBBY

Bed, Bath & Beyond, $BBBY, has in a rising channel after breaking consolidation between 58 and 64 in March. Touching the top and printing a shooting star yesterday, it is confirming lower today. The trend is higher but it may be in for a pullback in the short run. The Relative Strength Index (RSI) is bullish but moving lower while the Moving Average Convergence Divergence (MACD) indicator is positive and may be stalling. There is resistance higher at 75.75 and a move over the channel at 76 would look for a target of 83 on a Measured Move. Support lower comes at 72.20 and 69.25, also the bottom rail, followed by 67.70, 66 and 63.55. The reaction to the last 6 earnings reports has been a move of about 6.1% on average or $4.50 making for an expected range of 69.30 to 78.30. The at-the money weekly Straddles suggest a similar move by Friday while July Straddles suggest a $6.00 move by Expiry.

Trade Idea 1: Buy the July 77.5 Call for $1.40.

Trade Idea 2: Sell the June 67.5 Puts for 38 cents.

Trade Idea 3: Buy the July 77.5 Call selling the June 67.5 Puts for $1.02.

Trade Idea 4: Buy the June/July 77.5 Call Calendar Spreads for 56 cents.

Trade Idea 5: Buy the June/July 77.5 Call Calendar Spreads selling the June 67.5 Put for 20 cents.

Trade Idea 5: Buy the June/July 77.5 Call Calendar Spreads selling the July 65 Put for a 8 cent credit.

I like #4 or #5 or #6

Red Hat, $RHT

Red Hat, $RHT, made a top at 62 from March through May and fell back 20% before starting a stair step higher. Printing a shooting star yesterday the second step looks done, with the confirmation lower today. Time for consolidation or a pullback. The RSI is still in bearish territory and stalling before 60 and the Moving Average Convergence Divergence (MACD) indicator is positive but fading. There is resistance higher at 58.20 and 60.90 followed by 62.75. A move over 58.20 carries with it a Measured Move to 62.20. Support lower comes at 53.30 and 52 followed by 49.40 and 46.80 before 45.90, 45 and 43.25. The reaction to the last 6 earnings reports has been a move of about 9.3% on average or $5.30 making for an expected range of 50.80 to 61.40. The at-the money July Straddles suggest a larger move of $6.50 move by Expiry. Update: Over 1000 July 65 Calls were sold some this morning, but over 900 since the Fed meeting.

Trade Idea 1: Buy the July 55/50 Put Spreads for $1.80.

Trade Idea 2: Buy the July 55/50/45 Put Butterfly’s for $1.05.

Trade Idea 3: Sell the July 55 Straddle for $6.40.

Trade Idea 4: Sell the July 50/55/55/62.5 Kind of Iron Condor for $4.40.
selling the 55 Puts and Calls and buying the 62.5 Call and 50 Put.

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