Shopping for Earnings Trades in Whole Foods

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

Whole Foods Market, peaked on a bounce to 57 in February 2015. It started lower then and gapped down on earnings last May. A consolidation followed before another gap down in July. Since then it has moved back and forth in a channel between 28 and 35 for 9 months. Into earnings tonight it is testing the bottom of that channel.

The RSI is falling and at the edge of being oversold while the MACD is flat but negative. The Bollinger Bands® are opening lower, to allow the down move since early March to continue. Ugly.

There is support lower at 28 and then you need to look back to 2011 to find it again at 27 and 25 before 24 and 22.50. There is resistance above at 29.15 and 30.80 followed by 32.70 and 35. The reaction to the last 6 earnings reports has been a move of about 6.73% on average or $1.90 making for an expected range of 26.30 to 30.20.

The at-the money May 6 Expiry Straddles suggest a larger $2.65 move by Expiry with Implied Volatility at 147% above the May at 60%. Short interest is high at 10%. Open interest is focused on the Put side at 29.5 and 30, biggest at 29.5, with a smattering lower. On the Call side it is smaller and spread from 29 to 31.50, biggest at 29.

Whole Foods Market, Ticker: $WFM

Trade Idea 1: Buy the May 6 Expiry 28/26.5 1×2 Put Spread for free.

Trade Idea 2: Buy the May 6 Expiry 28.5/29.5 Call Spread for $0.47.

Trade Idea 3: Buy the May 6 Expiry 28.5/29.5 Call Spread and sell the May 6 Expiry 26.5 Put for a $0.08 credit.

Trade Idea 4: Sell the May 6 Expiry 26.5/30 Strangle for a $1.20 credit.

#1 gives the downside with leverage and a possible entry to the stock at 25. #2 gives the upside and #3 adds leverage and a possible entry at 26.42. #4 is profitable on a close from 25.30 to 31.20 at Expiry Friday.

This is the exact type of analysis given to Premium Users on earnings trades every day.

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