Comfortable Trade Ideas for HanesBrands Earnings

• Posted by Greg Harmon
• on February 4th, 2016

HanesBrands, $HBI, stock looks as comfortable as Michael Jordan does wearing the company’s clothes the past 6 months. Of the last 129 trading days it has closed in a box between 28 and 31.30 85% of the time. Heading into the earnings report tonight it is right in the middle of that range.

The momentum indicators are pointing lower. The RSI is falling and the MACD is heading towards a cross down. But both are near neutral readings. there is no real bias. One thing to note is the gap down into the box and then the gap with in the box both happened following earnings reports.

There is support at 29.50 and 28.50 followed by 28 and 26.50. Resistance above stands at 30.40 and 31 followed by 31.50 and 32 before 33.20. The last 6 earnings reports have seen the stock move by about 5.95% on average the next day, or about $1.75. This creates an expected range of 27.75 to 31.25. Short interest is moderate at 4.0%.

The February Straddles suggest a larger $3.67 move by expiry with implied Volatility at 75% above the March at 51%. Open interest is big on the put side with size at the 30 Strike and then smaller amounts at 27 and 28. On the call side open interest is is big at 31 and 32. Today sees a very large amount of activity on the 28 Strike put on the offer side, with two blocks of 600 trading, and total activity very near the total open interest at that Strike.

Trade Idea 1: Buy the February 30/32 1×2 Call Spread for free.

Trade Idea 2: Buy the February 30/32/34 Call Butterfly for $0.45.

Trade Idea 3: Buy the February 30/32/34 Call Butterfly and sell the February 26 Put for a 15 cent credit.

Trade Idea 4: Buy the February 29/27 1×2 Put Spread for free.

Trade Idea 5: Buy the February 29/27/25 Put Butterfly for 50 cents.

Trade Idea 6: Sell the February 27/32 Strangle for a $1.60 credit.

#1, and #2 look for a move higher but not to exceed about 32, following options bets. #1 is profitable from 30 to 34, while #2 makes money between 30.45 and 33.55. #3 uses leverage to expand that range to anywhere over 26 but biggest between 30 and 34 and maximum at 32. #4 and #5 look for the downside but not to fall past about 27 in February. #4 is profitable from 29 to 25 and #6 from 28.50 to 25.50. #6 is profitable between 25.40 and 33.60 at February expiry.

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