Premium Earnings 8-18-15

• Posted by Greg Harmon
• on August 18th, 2015

Two names today, that report before the open tomorrow, American Eagle Outfitters, $AEO, and Lowes, $LOW.

American Eagle Outfitters, $AEO

American Eagle Outfitters, $AEO, has been rising against trend support since February. It played a Cup and Handle along the way that continues to target 20.50. Now it is against resistance at 18.50 into earnings. The RSI is in the bullish zone and rising, while the MACD has just crossed up. There is support lower at 18 and 17.30 before 17 and 16.20. There is resistance above at 19.50 and 21 before free air. The reaction to the last 6 earnings reports has been a move of about 9.13% on average or $1.70 making for an expected range of 16.75 to 20.25. The at-the money August Straddles suggest a smaller $1.55 move by Expiry with Implied Volatility at 104% above the September at 43%. Short interest is high at 19%. Open interest is very large at the 18 Strike this week.

Trade Idea 1: Buy the August 18.5/18-17.5 1×2 Put Spread for free.

Trade Idea 2: Buy the August 18/17.5 Put Spread for 25 cents.

Trade Idea 3: Buy the August/September 19 Call Calendar for 25 cents.

Trade Idea 4: Buy the August/September 19 Call Calendar and sell the August 17 Put for free.

Trade Idea 5: Sell the August 18 Straddle for a $1.55 credit.

#1, and #2 give the downside, with #1 using margin. #3 and #4 looks for a pullback and bounce or just continuation higher. #5 is profitable on a close between 16.45 and 19.55 at Expiry Friday. I prefer #1 or #5 the best for short term, and #4 for longer term.

Lowes, $LOW

Lowes, $LOW, moved higher from from the October market low until a top in February. It then retraced 38.2% of that move before reversing higher. Last week it moved over the 100 day SMA and made a new high, sealing the reversal. This gives a longer term target on an AB=CD pattern to 92. The doji star forming today may mean a short term pullback though. The RSI is in the bullish zone, and the MACD is rising, both supporting more upside. There is support lower at 70.70 and 68.60 followed by 66.10. There is resistance above at 73.90 and 76.20 before free air. The reaction to the last 6 earnings reports has been a move of about 3.08% on average or $2.25 making for an expected range of 70.75 to 75.25. The at-the money August Straddles suggest a larger $2.70 move by Expiry with Implied Volatility at 48% above the September at 24%. Short interest is low at 1.5%. Open interest is very large on the Call side at 70 and the Put side at 67.5 this week.

Trade Idea 1: Buy the August 72.5/70 Put Spread for $0.70.

Trade Idea 2: Buy the August 72.5/70 1×2 Put Spread for 40 cents.

Trade Idea 3: Buy the August/September 75 Call Calendar for $0.53.

Trade Idea 4: Buy the August/September 75 Call Calendar and sell the August 70 Put for 20 cents.

Trade Idea 5: Sell the August 70/75 Strangle for a $1.00 credit.

#1, and #2 give the downside, with #2 using margin. #3 and #4 give the upside for the longer term with #4 using margin. #5 is profitable on a close between 69 and 76 at Expiry Friday. I prefer #3 or #4 the best.

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