Premium Earnings 2-23-15

• Posted by Greg Harmon
• on February 23rd, 2015

Two names today, one that reports after the close tonight, Express Scripts, $ESRX, and one before the open Tuesday, Home Depot, $HD.

Express Scripts, $ESRX

Express Scripts, $ESRX, moved higher from the October low, and since December has settled into a consolidation zone. The range between 80 and 86.60 is holding at a maximum of 38.2% retracement of the move up, showing strength. Heading into earnings the RSI is in the bullish range, while the MACD is rising, both supporting a move higher. There is support lower at 84.30 and 82.55 followed by 80.75 and 80. There is resistance higher at 86.60 and then free air higher, but with a Measured Move to 97.50. The reaction to the last 6 earnings reports has been a move of about 4.03% on average or $3.50 making for an expected range of 82.50 to 89.50. The at-the money weekly February Straddles suggest a smaller $3.15 move by Expiry with Implied Volatility at 41% above the March at 22%. Short interest is low at 2.2%. Open interest favors the 85 Strike below this week.

Trade Idea 1: Buy the February 87/88.5 1×2 Call Spread for free.

Trade Idea 2: Buy the February 87/88.5/90 Call Butterfly for $0.44.

Trade Idea 3: Buy the February 86/84 1×2 Put Spread for free.

Trade Idea 4: Buy the February 86/84/82 Call Butterfly for $0.45.

Trade Idea 5: Buy the February/March 90 Call Calendar (30 cents) and sell the February 82.5 Put for a 30 cent credit.

Trade Idea 6: Buy the February 82.5/March 90 Bullish Risk Reversal for 5 cents.

#1 and #2 makes give the short term upside and #3 and #4 the short term downside. #1 and #3 use margin. #5 and #6 give longer term upside, with a chance of owning the stock this week at 82.50. gives a possible entry on a retest of 285 and more leverage on a move higher. I prefer #6. #1 and #3 together is a good choice or #2 and #4 together without margin.

Home Depot, $HD

Home Depot, $HD, popped higher in August 2014 and has been running in an ascending channel since. Into earnings it is at the top of that channel. The RSI is bullish while the MACD is leveling and near a cross down. This catalyst may give the pullback to get in. There is support lower at 110.50 and 107.50 followed by 104.25 and 100.50. The channel bottom would be at about 105.25 this week. There is no resistance higher. The reaction to the last 6 earnings reports has been a move of about 2.10% on average or $2.35 making for an expected range of 110 to 114.75. The at-the money February Straddles suggest a larger $3.50 move by Expiry with Implied Volatility at 33% above the March at 20%. Short interest is low at less than 1%. Open interest favors the 111-112 Strike this week.

Trade Idea 1: Buy the February 111/109 1×2 put Spread for free.

Trade Idea 2: Buy the February 111/109-108/106 Split Put Butterfly for 60 cents.

Trade Idea 3: Buy the February/March 115 Call Calendar for $0.65.

Trade Idea 4: Sell the February/March 108 Put Calendar for $0.69 credit.

#1 and #2 looks for a move lower this week. #3 gives upside longer term and #4 adds margin and leverage to #3 with protection this week. I like #3 with #4 best to play the upside longer term, but #1 for a short term trade.

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