Author: Andrew Keene
Palo Alto Networks, Inc. (PANW) is an IT security company who’s platforms offer users a range of security products and services. The company’s stock is currently trading around $172.35 in a 52 week range of $108.10-$200.55. The stock has been performing extremely well this year with shares rallying over 40.50% year to date. The company is set to report their most recent quarterly eanrings report today after the bell and based on a number of metrics the stock appears to be primed for a move higher on the release.
PANW has rallied on earnings day 10 of the past 12 quarters with an average move of 5.78%. The stock is also beginning to look stronger on a chart. The stock is in a solid bull trend higher from recent lows and the stock is approaching the top of the Ichimoku Cloud indicating a potential for a bullish upside breakout. Market makers are expecting the stock to move about $11.00 up or down by Fridays close. This would imply a move of around 6.6% meaning that expectations are in line with historical averages. With the stock trading well on a chart and the historical movement showing a clear bullish bias I will look for a bullish trade setup in PANW.
Using the market makers implied move I can calculate an upside target for PANW on Friday’s close. Remember, the market closes early on Friday for the holiday so I will need to manage this trade early. My upside target will be $183.35.
Potential trade: Buying the PANW Nov 27th Weekly 180-185 Call Spreads for $1.15
Risk: $115 per 1 lot
Reward: $385 per 1 lot
This trade has better than 3-1 reward to risk ratio and expires this week.
Tyson Foods (TSN) is a producer of food products with over 113,000 employees. The company’s stock is currently trading around $43.75 in a 52 week range of $37.10-$47.71. The stock has performed relatively well this year with shares rallying 9.18% year to date. The company is set to report their most recent quarterly warnings on Monday morning before the opening bell and all indications are pointing to a possible move higher in the stock.
TSN has rallied 7 of the past 12 quarters on earnings day with an average move of 5.29%. The stock has also rallied from earnings day to expiry 9 of the past 12 quarters with an average move of 7.67%. The stock has also maintained a solid bull trend since it last released earnings. The stock is trading inside of the Ichimoku Cloud but the cloud is upward sloping. The stock is trading slightly lower today but the trend this cycle has been for stocks to trade in the opposite direction after the release suggesting that TSN may be higher on the open on Monday. With the stock at current levels the options market is implying a move of around $3.35 implying a move of around 7.6% by December expiration.
Using that implied move and taking into consideration the bullish chart and historical movement a move in TSN to the upside target of $47.10.
As a possible trade setup a trader could look for call spreads into the close of today session targeting the implied upside target.
L Brands, Inc. (LB) is a apparel and accessories retailer catering to women’s apparel and beauty products. The company’s stock is currently trading around $91.65 in a 52 week range of $75.11-$101.11. The stock is moderately higher this year with shares up nearly 4.75% year to date. LB is set to report their most recent quarterly earnings results after the bell today and it appears that the stock is primed for a move higher.
The stock has rallied 7 of the past 7 quarters on earnings day with an average move of 1.96%. On average the stock has moved 3.57% from earnings to expiry. The chart of LB is also relatively strong at these levels. The stock is trading inside of the Ichimoku Cloud but the cloud is sloping higher indicating the bull trend is still somewhat intact. The options market is also expecting a large move out of LB on the report. Currently options markets are implying a move of around $4.20 in LB by Friday’s close. This would represent a move of around 4.6%, substantially more than the historical average. Even with high expectations the strong historical movement record and neutral to bullish chart setup indicates a possible opportunity for a long in LB.
Using the implied move to calculate an upside target I can set up an options trade with the expectation for LB to close around $95.85 on Friday.
Potential Trade: Buying the LB Nov 92.5-95 Call Spreads for $0.90
Risk: $90 per 1 lot
Reward: $160 per 1 lot
Wal-Mart Stores (WMT) is set to report their most recent quarterly earnings report before the open of tomorrow’s trading session. The stock is currently trading around $57.30 in a 52 week range of $56.30-$90.97. The stock is moderately higher on today’s session but has been massively underperforming the broader market this year. The stock has fallen over 33% year to date and is less than $1.00 off of its 52 week lows going into the report.
Despite the modest move higher in the stock today it appears that WMT is setting up well for a short ahead of earnings. Over the past 12 quarters the stock has only rallied 3 times on earnings day and on average moves about 2.8% higher or lower. The chart is also very weak with shares of WMT trading well below the Ichimoku Cloud. The cloud slopes lower and both of the major moving averages are well below the cloud. Our proprietary indicator, AlphaTracker, also shows that institutional traders are net short the stock moving into the earnings release. With all of these factors showing a bearish setup in WMT I will be looking to get short before the release.
Options markets are currently implying a move of around $2.00 by this Friday’s close which I can use to calculate a downside target around $55.30. Using this target I can select an options strategy.
Potential trade: Buying the WMT Nov 56.5-55.5 Put Spreads for $0.30
Risk: $30 per 1 lot
Reward: $70 per 1 lot