Premium Earnings 2-19-15

• Posted by Greg Harmon
• on February 19th, 2015

Two names today, one that report after the close tonight, Nordstrom, $JWN, and one before the open Friday, Deere, $DE.

Nordstrom, $JWN

Nordstrom, $JWN, moved higher out of consolidation zone that ran for 6 months in 2014. Since the beginning of 2015 it has been consolidating under 80, moving sideways. Heading into earnings the RSI is running along just over the mid line, still in the bullish range, while the MACD is crossed down and falling. There is support lower at 76 and 73.75 followed by 70.75. There is no resistance higher over 80. The reaction to the last 6 earnings reports has been a move of about 4.57% on average or $3.55 making for an expected range of 74.25 to 81.45. The at-the money February Straddles suggest a slightly smaller $3.30 move by Expiry with Implied Volatility at 79% above the March at 24%. Short interest is moderate at 3.6%. Open interest favors the 75 Strike Put and the 80-82.5 Strike range if it moves to the upside for February.

Trade Idea 1: Sell the February 75/82.5 Straddle for a $0.85 credit.

Trade Idea 2: Buy the February 80/82.5 Call Spread for $0.57.

Trade Idea 3: Buy the February 77.5/80 1×2 Call Spread for $0.39.

Trade Idea 4: Buy the February 77.5/80/82.5 Call Butterfly for $0.65.

Trade Idea 5: Buy the February 80/82.5 Call Spread and sell the February 75 Put for free.

#1 makes money from 74.15 to 83.35, a great range. #2 gives the short term upside and looks for the options open interest to draw it higher and #3 adds leverage to a lower range, that gets in the money quicker. #4 gives that same lower range without margin. #5 plays off of the large open interest positions. I have taken a position in #5 already for free. After that I prefer #3 or #4.

Deere, $DE

Deere, $DE, has been trapped in a tightening symmetrical triangle since the beginning of 2011. The break of the triangle would look for $36 move. Heading into earnings the price is nearing the top of the range. The RSI is bullish and rising along with the MACD. There is support lower at 91.30 and 90 followed by 89.15 and 87 before 84.30. There is resistance higher at 93.50 and 95 before 98 and 100. The reaction to the last 6 earnings reports has been a move of about 1.65% on average or $1.55 making for an expected range of 90.40 to 93.60. The at-the money February Straddles suggest a larger $2.70 move by Expiry with Implied Volatility at 54% above the March at 20%. Short interest is high at over 10%. Open interest favors the lower Strikes this week with the biggest at 90.

Trade Idea 1: Buy the February 92/93.5 1×2 Call Spread for free.

Trade Idea 2: Buy the February/March 95 Call Calendar for 60 cents.

Trade Idea 3: Buy the February 91.5/90 1×2 Put Spread for free.

Trade Idea 4: Sell the February/March 85 Put Calendar for a 38 cent credit.

#1 gives the upside and uses margin. #2 looks for a move higher but not above 95 this week. #3 gives downside short term with margin. #4 adds leverage and lowers cost when paired with #2. I like #2 and #4 paired best, then #1 and #3 together.

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