Union Pacific and Yum Brands: Premium Earnings 7-18-12

• Posted by Greg Harmon
• on July 18th, 2012

Two names that report after the close tonight, Yum Brands, $YUM, and before the open Thursday, Union Pacific Corp, $UNP.

Yum Brands, $YUM

Yum Brands, $YUM, is moving higher over resistance, now support, at 65, negating the shooting star from Wednesday. The Relative Strength Index (RSI) remains in bearish territory but has been drifting higher and making a new high, with a Moving Average Convergence Divergence (MACD) indicator that is positive and growing. This has an upward bias. There is resistance higher at 67.25 and 67.90 followed by a gap up to 69.30. Support lower is found at 62.30 and 61.60 followed by 59 and 56. The reaction to the last 6 earnings reports has been a move of about 2.3% on average or $1.70 making for an expected range of 63.50 to 66.90. The at-the money July Straddles suggest a $2.80 move by Expiry with Implied Volatility at 65% in the front month well above the historical at 29% and August at 32%. Institutions seem to be buying the 65/67.5 Call Spread this morning and there is also activity on the 62.5 Puts all in July.

Trade Idea 1: Buy the July 65/67.5 Call Spread for $1.00.

Trade Idea 2: Sell the July 60 Put for $0.20.

Trade Idea 3: Buy the July/August 67.5 Call Calendar for $0.87.

Trade Idea 4: Buy the July/August 67.5 Call Calendar selling the August 60 Put for $0.05. Move to the 57.5 for only 35c, or the 60/57.5 Put Spread for net 57 cents

I took trade #4 with the Put Spread for 52 cents.

Union Pacific Corp, $UNP

Union Pacific Corp, $UNP, broke above a channel with a 115.50 top in June and after retesting it is consolidating in a higher channel between 115.50 and 120. The RSI is bullish while the MACD is negative but near flat. This has an neutral to upside bias as well. There is no resistance higher over 120 but support lower is found below 115.50 at 113 and 109.50 followed by 107.40 and 105.30. The reaction to the last 6 earnings reports has been a move of about 3% on average or $3.55 making for an expected range of 115.20 to 122.30. The at-the money July Straddles suggest about a $3.70 move by Expiry with Implied Volatility at 48% in the front month above the historical and August at 22.5%.

Trade Idea 1: Buy the July 120 Call for $1.09.

Trade Idea 2: Sell the July 115/110 Put Spread for $0.35.

Trade Idea 3: Buy the August 120/125 Call Spread for $1.70.

Trade Idea 4: Buy the August 120/125 Call Spread selling the August 110 Put for 87 cents. Add the July 110 Put long as protection for 19 cents if you like

Trade Idea 5: Buy the August 110/125 bullish Risk Reversal for free. Add the August 105 Put for 50 cent to cap downside risk

Trade Idea 6: Buy the July/August 125 Call Calendar selling the August 110/105 Put Spread 35 cents.

I took trade #6 for 30 cents

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