Tempur-Pedic Earnings Trade Ideas

• Posted by Greg Harmon
• on January 24th, 2012

I gave the appetizers and entree to the premium users earlier. Now here is some dessert for everyone.

Tempur-Pedic, $TPX

Tempur-Pedic, $TPX, is in a bull flag after a move higher from the mid December bottom and the previous flag at 58. As is runs into earnings tonight it has a Relative Strength Index (RSI) that is bullish and trending higher, but with a slight pullback. The Moving Average Convergence Divergence (MACD) indicator is positive, but is fading. A mixed bag but biased to the upside. Resistance is found higher at 63.70 and 65.60 followed by 70 and 73.30. Support below is found at 59.50 and 57.35 followed by 55.55 and 51.33. The average reaction to earnings for the last 6 quarters has been a move of 5.2% or $3.20 based on toady’s price for a range of about 58.30 to 64.70. The closest-to-the-money Straddles imply a bigger move of $37.70 by February Expiry for a range of 53.8-69.20. Volatility in the February options at about 605 is elevated compared with the historical at just under 40%.

Trade Idea 1: Sell the February 55 Put for $1.20
A bullish bet that it does not fall below 55 by February expiry.

Trade Idea 2: Buy the February 60/65 Call Spread for $2.40
A bullish bet that it goes above 65 by February expiry, giving a 2:1 reward to risk.

Trade Idea 3: Buy the February 60/65 Call Spread Risk Reversal selling the February 55 Puts for $1.20
A bullish bet that it goes above 65 by February expiry, with leverage and improved reward to risk ratio of giving a 4.17:1.

Trade Idea 4: Sell the February 50/70 Strangle for $1.35
A conservative bet that it does not move outside of 48.65 to 71.35 by February Expiry.

Trade Idea 5: Sell the February 60/65 Strangle for $5.20
A bet that it odes not move outside of 49.80 to 70.20 by February expiry, but expecting a tighter range than in trade 4.

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