Premium Earnings 10-7-14

• Posted by Greg Harmon
• on October 7th, 2014

Two names today, one that reports after the close, Yum Brands, $YUM, and one before the open Wednesday, Monsanto, $MON.

Yum Brands, $YUM

Yum Brands, $YUM, has been in a consolidation range between 71.20 and 73.20 for 6 weeks until it fell out of it early today. The Measured Move lower would target 57.50. Into earnings the Relative Strength Index (RSI) is pulling back after failing to move into the bullish zone with the MACD rolling over. There is support lower at 69.75 and then a small gap open between 68.06 and 68.09 followed by 66. There is resistance higher at 71.20 and 73.20 before 74.50 and 75.60. The reaction to the last 6 earnings reports has been a move of about 5.25% on average or $3.70 making for an expected range of 66.60 to 74.10. The at-the money weekly October 10 Straddles suggest a smaller $3.30 move by Expiry Friday with Implied Volatility at 61% above the October at 38% and the November at 22%. Short interest is low under 2%. Open interest favors the 72 to 75 Strike area on a move and the 72.5 Strike on the Put side. There were sellers of 70 and 72 Puts yesterday and today sees a big buyer of the 72.50 Calls.

Trade Idea 1: Buy the October 10 weekly 70.50 Call for $1.64.

Trade Idea 2: Buy the October 10 weekly 70.50/72.5 Call Spread for $0.80.

Trade Idea 3: Buy the October 10 weekly 70.50/72.5 1×2 Call Spread for free.

Trade Idea 4: Buy the October 10 weekly 70/68.5 1×2 Put Spread for free.

I like #3 and #4 together.

Monsanto, $MON

Monsanto, $MON, is breaking down into earnings in the morning. The Measured Move targets 107.25 and there is support at 104.50 below that. The Relative Strength Index (RSI) is in the bearish zone and nearing oversold territory with a falling MACD. There is resistance higher at 109.80 and 110.90 followed by 112.40. The reaction to the last 6 earnings reports has been a move of about 1.20% on average or $1.35 making for an expected range of 107.60 to 110.40. The at-the money October Straddles suggest a larger $3.75 move by Expiry with Implied Volatility at 40% above the October at 28% and November at 19%. Short interest is moderate at 6%. Open interest favors the 114 to 116 range on a move higher but there is very large Open Interest at the 109 Put. There were sellers of 111/109 Put Spreads yesterday and today sees a large seller of the October monthly 105 Puts.

Trade Idea 1: Buy the October 10 weekly 109/107-106 1×2 Put Spread for free.

Trade Idea 2: Buy the October 10 weekly 109/October 10 weekly 106 – October monthly 105 Put 1×2 for free.

Trade Idea 3: Buy the October 108/105/102 Put Calendar for a $0.40.

#1 covers the down side but requires margin and ability to hedge under 106. #2 looks for the Open interest as protection next week. #3 gives the downside without margin and anchored at that big OI. I like #2 or #3 best.

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