Whether Yum or Yuck! 4 Options Trades for Earnings for Yum! Brands

Yum! Brands reports earnings after the close on Wednesday with only two days left on the July options this presents an opportunity for a trade. Below is the chart for Yum! Brands (ticker: $YUM) at the close of business on Tuesday. There are a few interesting points to notice that come into play. First

Yum! Brands, $YUM Daily

there is the rising trend support line currently at about 54. Next there is the potential double top that when combined with the trend support creates an ascending triangle with resistance at 57. Third, there is previous support from the bottoms in June at 53.80 and then 52.80. Next, the Relative Strength Index (RSI) is trending lower. Finally the Moving Average Convergence Divergence (MACD) indicator is is about to cross lower. These last two points support a move to the downside.

Turning to the options board the July 55 Straddle (55 Call and 55 Put) could be sold for $1.80 and bought for 1.86 at the close of business Tuesday. This implies a move of 3.3% by the close of business Friday when the options expire. The last four moves off of earnings have been 6%, 5%, 2.3% and 4%. An average of 4.3% so the Straddle may be a little cheap. This creates a price envelope of 53.20 to 56.80 where the Straddle seller will make money and conversely the hurdle for the Straddle buyer to make money is price exceeding 53.14 to the downside and 56.86 to the upside. Too tight either way for me with the resistance and support discussed above, but selling it for income as a long holder of the stock may make sense. Yuck!

But with the stock in an up trend, buying the stock and selling the 55 call against it gives a 3% return if it is called away Friday or a 54.10 basis if it expires worthless, right at the trendline support. Or if you favor the bias to the down side but have faith in the uptrend, selling the put naked or selling a cash-collateralized put, putting you in the stock with a basis of 54.10 if exercised.

As always you can see details of individual charts and more on my StockTwits feed and on chartly.)

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The information in this blog post represents my own opinions and does not contain a recommendation for any particular security or investment. I or my affiliates may hold positions or other interests in securities mentioned in the Blog, please see my Disclaimer page for my full disclaimer.

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