Analysis and Trade Ideas for Tempur Sealy Earnings

• Posted by Greg Harmon
• on July 30th, 2015

This analysis and the trade ideas were given to subscribers at 11am.

Tempur Sealy, $TPX, is the result of the Tempur Pedic buyout of Sealy, and made for a mattress giant. The company gained an activist following and has seen its stock rise. Tonight the company will report earnings after the market close. The crowd sourced estimate in Estimize shows an expected 47 cents per share and revenues of $753.3 million, above the Wall Street crowd.

The price and market action have told an interesting story the past year. After a rise to a top in July it went through a bottoming consolidation in late 2104 and into 2015 that led to a run higher. This peaked short term in mid July at 71.50 before pulling back to the 20 day SMA. Since then the price has reversed higher and is back at the top into earnings.

The momentum indicators are showing strength. The RSI is in the bullish zone, while the MACD is rising toward a cross up. A look at the Bollinger Bands® shows them flat and mildly squeezing. This is often a precursor to a move in the stock.

There is support from prior price history at 69.50 followed by 67.85 and 66.75 before 62. There is no resistance above 71.50 but a target of 76. The average move following the last 6 earnings reports has been 12.08% or about $8.55 at current price levels. The stock also has elevated short interest at 9.3%.

Looking at the August options chain, shows the at-the-money Straddle pricing a $7 move into Expiry, quite a bit smaller than the historical. The implied volatility is slightly elevated at 48% compared to the September options at 36%. Open interest is larger on the Call side and focused at the 70 and 75 Strikes, with minimal open interest in Puts at 65 and 70.

Tempur Sealy, $TPX

Trade Idea 1: Buy the August 70/75 Call Spread for $2.20.

Trade Idea 2: Buy the August 70/75 Call Spread and sell the August 65 Put for $1.00.

Trade Idea 3: Buy the August 70/75 1×2 Call Spread (50 cents) and sell the August 65 Put for a $0.65 credit.

Trade Idea 4: Trade Idea 3: Buy the August 70/75/80 Call Butterfly for $1.40.

Trade Idea 5: Sell the August 65/75 Strangle for a $3.00 credit.

#1 looks for a rise to at least 75. #2 looks for the same move higher but uses leverage to improve return, with risk of owning the stock under 65 at Expiry. #3 looks for a rise and stall at the large open interest at 75 with leverage, and a risk of owning the stock under 65. If it runs past 75 you will need to hedge with stock. #4 looks for the 75 Strike open interest to draw and hold it. #5 is profitable on a close between 62 and 78 at Expiry. I like #3 or #5 best if you have margin to use.

Get my ebook, Markets for 2015 and Beyond, a long term forecast with all proceeds going to charity.

Want to learn more about Dragonfly Capital Views?
Dragonfly Capital Views Performance Through July 2015 Expiry and sign up here

If you like what you see above sign up for deeper analysis and trading strategy by using the Get Premium button above. As always you can see details of individual charts and more on my StockTwits page.

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.

blog comments powered by Disqus