Traders don’t need Doc’s DeLorean to construct a profitable earnings trade setup going into this afternoon’s report. GES has traded in a 52-week range of $22.38 – $34.36 (Aug 3.). Since shares posted a high close of $34.16 on August 2nd, the stock has declined over 20 percent, pulling back in 12 of 18 subsequent sessions. Up $0.50 as we move into the second half of today’s sessions, GES is up 9.5 percent on the year, underperforming the broader market and outperforming the average hedge fund.
When playing an event like today’s earnings calls, traders might choose to largely ignore the bearish chart in choosing an outlook for the catalyst movement. The stock has moved higher on 3 of the past 4 earnings calls, and 5 of the past 8. Consensus analyst estimates for today’s report show a $0.36 EPS on $622.87 million of revenue. The company beat earnings last quarter and the stock rallied eight percent. There are concerns as to back-to-school spending (historically a significant revenue source for GUESS?) in light of the changing spending habits of the American consumer, and this could be reflected in any guidance given on today’s call.
We believe the stock is prepared to rally.
Our Trade: Buy the GES Sep 28-31 Call Spread for $0.90
Risk: $90 per 1 Lot
Reward: $210 per 1 Lot
Break-even: $28.90
Greeks:
Delta: Long
Gamma: Long
Theta: Short
Vega: Long
We like this trade because it offers a decent reward:risk setup (2.3:1) and with the stock trading near $28, it is well aligned with the $3 movement the option market is implying.
