How to Trade Baidu for the Earnings Report

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Sale Ends October 31st!

Baidu, $BIDU, reports their earnings Wednesday night after the market close. Heading into the report the stock has been very stable, in a range between 210 and 230 for 3 months outside of a quick dip below when the broad market was at its weakest. Tuesday it looked like it might break that range. But Wednesday sees a pullback in the making. That pullback might stop at support at 221.30 or the bottom of the range. Below that there is support at 195 and 192 before 180. There is no resistance over the top of the range at 230. moving sideways with the MACD crossed and rising. These support an upside bias.

The reaction to the last 6 earnings reports has been a move of about 6.48% on average or $14.50 making for an expected range of 207.50 to 236.50. Short interest is low at only 1%.

The at-the money October 31 Weekly Expiry Straddles suggest a similar $13.70 move by Expiry Friday expected by options traders. The Implied Volatility at 92% is extremely elevated compared to the November Expiry contracts at 44%. Open interest is very smoothly spread out on both the Call and Put side. This gives no clues on a specific strike to focus on. But traders are putting on bearish 212.5/235 Risk Reversals, selling the 235 Calls to buy the 212.5 Puts, into the report. This could be a speculative play to the downside, but could also be a protection strategy for a long stock position. Either way it expresses a concern for a pullback.

Baidu, $BIDU
bidu

Trade Idea 1: Buy the October 220/210 Put Spread for $3.80.
A straight directional bet for the downside. Not a great reward to risk, but good protection for long stock.

Trade Idea 2: Buy the October 220/210 1×2 Put Spread for $1.55.
A downside bet with margin used, that can offer an entry into the stock at 200 if it moves to 210 or below.

Trade Idea 3: Buy the October 222.50/230 1×2 Call Spread for free.
A no cost upside bet that uses margin. You should be ready to hedge this by buying stock if it moves above 230. I gives a profit from 222.50 to 237.50.

Trade Idea 4: Sell the October 210/235 Strangle for a $4.10 credit.
A bet that the current range holds to collect the full credit Friday.

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