Premium Earnings 2-1-17: Facebook and Tractor Supply
- Posted by Greg Harmon
- on February 1st, 2017
Two names today that report after the close tonight, Facebook, $FB, and Tractor Supply, $TSCO.
Facebook, $FB, had a strong run from June to its high in October, gaining over 23%. But then it pulled back quickly, retracing 78.6% of the move before finding support. Since the start of 2017 it has been moving higher, and goes into earnings at the prior high. A Measured Move suggests a target to the upside of 140.25 upon making a new high. Into earnings it has pulled back slightly, but it has a RSI that is near an overbought condition in the bullish zone, while the MACD is flat but about to cross down. There is support lower at 130 and 127 followed by 124 and 120.80 then 115. There is resistance at 133.50 and then free air. The reaction to the last 6 earnings reports has been a move of about 6.08% on average or $8.00 making for an expected range of 123.25 to 139.50. The at-the money February 3 Expiry Straddles suggest a smaller $6.65 move by Expiry with Implied Volatility at 80% above the February at 35%. Short interest is low under 1%. Open interest is spread from 123 to 130 on the Put side, biggest at 123. On the Call side it is found from 123 to 137, largest at 137 and then 130.
Trade Idea 1: Buy the February 3 Expiry 130/127-126 1×2 Put Spread for free.
Trade Idea 2: Buy the February 3 Expiry 130/126/122 Put Butterfly for $0.70.
Trade Idea 3: Buy the February 3 Expiry/February 137 Call Calendar (55 cents) and sell the February 3 Expiry 124 Put for a 25 cent credit.
Trade Idea 4: Buy the February 3 Expiry 132/137 Call Spread ($1.90) and sell the February 3 Expiry 128 Put for free.
Trade Idea 5: Sell the February 3 Expiry 122/140 Strangle for a $1.00 credit.
#1 and #2 give the downside with #1 using leverage and may put you in the stock at 123. #3 and #4 give the upside may put you in the stock at 124 or 128. #5 is profitable on a close from 121 to 141 at Expiry. I prefer #1 or #4. I own stock, February 130/135 Call Spreads, and February/March 135 Call Calendars.
Tractor Supply, $TSCO, gapped down in September and then drifted lower to a bottom in October. It recovered through November, but could not close the gap, finding resistance at 78.25. The past two weeks it has been drifting back lower. It has a RSI that has fallen out of the bullish zone, and a MACD that is falling. There is support lower at 71 and 69.30 followed by 66.60 and 64 then 61.50. There is resistance above at 75.25 and 78.25 followed by a gap to fill at 83.25. The reaction to the last 6 earnings reports has been a move of about 2.48% on average or $1.80 making for an expected range of 71 to 74.60. The at-the money February Straddles suggest a larger $4.50 move by Expiry with Implied Volatility at 33% above the March at 27%. Short interest is moderate at 3.7%. Open interest on the Put side is focused at 70. On the Call side it is focused at 75 and 80 and much bigger.
Trade Idea 1: Buy the February 70/75 Bullish Risk Reversal for 35 cents.
Trade Idea 2: Buy the February 70/75/80 Call Spread Risk Reversal for free.
Trade Idea 3: Buy the February/March 75 Call Calendar ($0.40) and sell the February 65 Put for free.
Trade Idea 4: Sell the February 70/80 Strangle for a $1.25 credit.
#1 #2 and #3 give the upside and #1 and #2 may put you in the stock at 70, while #3 has protection down to 65. #4 is profitable on a close from 68.75 to 81.25 at Expiry. I prefer #3 or #4.
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Gregory W. Harmon CMT, CFA, has traded since 1986 and held senior positions including Head of Global Trading, Head of Product Development, Head of Strategy and Director of Equity. (More)