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
Breakeven: $93.40

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
Breakeven: $56.20