Toll Brothers Inc. (TOL) is a luxury home designer and builder based out of Pennsylvania. The company also draws revenue from its ownership and operation of various golf courses and country clubs tied in with its suburban luxury home developments. At the time of this post (10:30AM CST), TOL is currently trading at 34.80, up 0.58% on the day. The stock is within the upper half of its 52 week trading range of 28.98-39.95, and has rebounded well off of the yearly lows printed in early October. TOL is scheduled to report fourth quarter earnings pre-market tomorrow, 12/10/2014.

Historically over the last eight quarters of earnings reports from TOL, the stock has traded with mixed to negative reactions, moving lower five out of eight sessions immediately following the EPS release, with an average historical post-earnings directional move during this time period of 2.7%. Currently the options market is pricing in a slightly larger than average move of about 4.60% based on the current pricing of the ATM straddle. This anticipated move by this week’s weekly options expiration would impute a move up or down of around $1.60 in the underlying stock. Despite historically mixed to bearish investor reactions to TOL earnings reports over the last eight quarters, I will maintain my bullish bias on the name going into the report tomorrow. Toll Brothers released positive preliminary numbers on November 10th, indicating increases in both revenues and future orders. Additionally from a technical standpoint, the stock remains in a bullish consolidation pattern on the daily chart, well above the upward sloping Ichimoku Cloud and all relevant moving averages. Bullish lean intact, I will be looking to get long this name into earnings tomorrow morning.

Trade: Buying the TOL Dec 12th Weekly 35.5-36.5 Call Spreads for $0.25
Risk: $25 per 1 lot
Reward: $75 per 1 lot
Breakeven: $35.75

AutoZone, Inc. (AZO) is a US based distributor and retailer of auto parts and accessories that sells both through brick and mortar locations across the country and also online via its website. The company also creates and sells automotive diagnostic software that is available under its ALLDATA subsidiary name. At the time of this post (10:30AM CST), AZO is currently trading at 583.27, down 0.80% on the day. The stock printed its 52 week highs of 594.53 off the open today, and even after selling off some going into earnings tomorrow morning, this name appears firmly entrenched in bullish territory, just off the highs for the year and in a strong uptrend off of the 500.00 support level that held in mid-October. AZO is set to report earnings pre-market tomorrow, 12/9/2014.

Over the last eight quarters of earnings data available, AZO has traded with mixed results, moving higher and lower evenly (four of eight quarters), with an average historical directional move of 2.7%. The options market is currently pricing in a move of around 4.25% by December expiration, representing what would be a move of $24.60 in the underlying stock by 12/20/2014. While historically the investor reaction following AZO earnings reports has been mixed, the bullish momentum that is evident in this name via the upward sloping Ichimoku Cloud and continued buying well above all relevant moving averages on a daily chart creates a convincing argument for a sustained move higher before December expiration. I will be looking to get long this name into the earnings release tomorrow.

Trade: Buying the AZO Dec 590-600-610 Call Fly for $1.70
Risk: $170 per 1 lot
Reward: $830 per 1 lot
Breakeven: $591.70 and $608.30

Ensco plc (ESV) is a London based oil and gas drilling and exploration company, and currently the world’s second largest offshore driller by total fleet size. As of the writing of this article (10:30AM CST), ESV is currently trading lower on the day, down 3.37% to 30.40. The stock printed 52 week lows earlier in the session, as the decline in oil prices to levels not seen in around four years continues to drag down the stock price of offshore drillers. ESV is down over 50% from its trading levels of around the 60.00 at this time last year.

As ESV, much like crude prices at large, has been firmly entrenched in a strong and seemingly unending downtrend for most of this year, it should come as no surprise that we saw some extremely bearish unusual options activity in the name today. Earlier this morning we saw a large buyer of the Jan ’15 26 Puts step in and buy 2,471 contracts at the offer for $0.45, and another 1,939 contracts around 35 minutes later for $0.60 for a total cash outlay of $237,535 before commission costs. Based on the open interest of just 337 contracts we know this was an opening transaction, looking to profit on what would be over a 10% further decline in the stock price by the January ’15 monthly expiration. As both the ESV stock and global oil prices have yet to make any real indication that they can cease hemorrhaging at current rates, I am inclined to lean bearish with the large put buyer from this morning.

Trade: I bought the ESV Jan 26 Puts for $0.475 on Average
Risk: $47.50 per 1 lot
Breakeven: $25.525

Ulta Salon, Cosmetics & Fragrance, Inc. (ULTA) is a retailer that offers consumers salon products and services in retail stores. The company’s stock is currently trading around $124.30 in a 52 week range of $80.35-$129.47. The stock has been very strong this year with shares rallying nearly 29% year to date. The company is set to report earnings after the bell today with analysts expecting EPS of around $0.83 on $711 million in revenue.

ULTA has been strong on earnings day over the past 8 quarters with shares rallying 6 times on earnings day. On average the stock moves around 14.3% on earnings day and this time around the options market is implying a move of around $13.35, or around 10.7%, by December expiration. ULTA is also looking strong on a chart with shares trading well above the Ichimoku Cloud. The stock also caught a round of upgrades earlier this week ahead of their earnings tonight. With a strong technical setup and strong historical track record I can’t justify anything but a long in ULTA. Using the options market to calculate an upside target I will be looking to get long ULTA with an upside target of $137.65

Trade: Buying the ULTA Dec 130-135 Call Spreads for $1.50
Risk: $150 per 1 lot
Reward: $350 per 1 lot
Breakeven: $131.50

American Eagle Outfitters, Inc. (AEO) is an apparel and accessory retailer that operates approximately 1,000 brick and mortar retail locations primarily within the US, with additional but less significant presence in Mexico, Canada, China and Hong Kong. The company’s primary consumer demographic is young men and women in the 15-25 age range, and as such is a direct competitor with similar retailers Abercrombie & Fitch (ANF) and Aéropostale (ARO), both of which also reported earnings earlier this week. At the time of this post (10:15AM CST), AEO is currently trading down to 13.80, a move lower of 3.90% on the day. AEO is currently trading just over the mid point of its 52 week range of 10.12-16.50, and is set to report earnings today, 12/4/2014 after the market close.

Over the last eight quarters of earnings data available, AEO has reacted primarily bearishly in the trading sessions immediately following earnings, trading lower five out of eight times after the EPS release. The historical move during this period was 7.2%, but it may be worth noting that three of the five one-day moves lower have been of a magnitude of at least -9.5%. The options market is currently pricing in a move of around 10.18% based on the ATM straddle in AEO, reflecting what would be a $1.40 move in the underlying stock by this Friday’s weekly expiration. Part of the reasoning for this expected volatility may be related to the earnings of previously mentioned competitors ANF and ARO, the latter down over 25.24% on today’s session following a very negative earnings reaction from investor response to another quarter of losses and missed expectations. ANF is also down over 4.5% on the session after initially trading higher following its EPS release the previous day. Although American Eagle has managed to hold and rebound off of its lows in late May and early June, the teen apparel market seems to be having a very tough time maintaining any traction in recent quarters, and I am inclined to maintain my bearish lean on AEO going into their report this afternoon.

Trade: Buying the AEO Dec 5th Weekly 13.5-12.5 Put Spreads for $0.28
Risk: $28 per 1 lot
Reward: $72 per 1 lot
Breakeven: $13.22

Sears Holdings Corporation (SHLD) is a retailer with nearly 2,000 stores in the U.S. The company’s stock is currently trading around $34.42 in a 52 week range of $24.10-$49.34. The stock has been massively underperforming the market this year with shares falling by nearly 30% year to date. The company is set to report their most recent quarterly earnings tomorrow morning before the bell.

The stock has been relatively weak on earnings day over the past 8 quarters with shares moving lower on earnings day 6 times. On average the stock moves on earnings around 8.3%. Currently the options market is implying a move of around $3.20 by Friday’s close. This 9.3% implied move is a bit higher than the historical average but traders should keep in mind that there is 2 full trading days’ worth of time premium in this straddle. With a neutral chart setup and a bearish historical movement record SHLD seems to be setting up well for a short on earnings.

Using the implied move I can calculate a downside target of around $31.20

Trade: I bought the SHLD Dec 5th Weekly 32-31 Put Spreads for $0.25
Risk: $25 per 1 lot
Reward: $75 per 1 lot
Breakeven: $31.75

The Kroger Company (KR) is a well known US based retailer and the country’s largest supermarket chain by total revenue. In addition to its grocery/supermarket stores, the Kroger Company also operates a variety of mixed marketplace, convenience, and jewelry stores across 31 states. At the time of this post (11:15AM CST) KR is currently trading at 58.80, down 1.16% on the day. The stock’s 52 week range is fairly wide, trading from 35.13-60.38. The year’s highs were printed just days ago on November 28th, as the stock maintained a very strong uptrend throughout the year after printing lows in early February. KR is set to report earnings tomorrow, 12/4/2014 before the market open.

The recent historical trend for KR following its earnings reports has been predominantly bullish, trading higher on five out of the last eight subsequent sessions, and posting an average move of 3.3% during this time. The options market is currently pricing in an implied move of 6.89% by this month’s December 20th expiration, reflecting what would be a $4.05 move in the underlying equity in the next 17 days. KR has been immensely bullish over the course of the year, up over 41% from this time in 2013. The near term trend appears very bullish and intact as well, as the stock has pulled back slightly off of the highs, but remains well over the upward sloping Ichimoku Clouds and the relevant moving averages on the daily chart. Considering this continued bullish sentiment in KR, I will be looking to position myself long going into the earnings report tomorrow morning.

Potential Trade: Buying the KR Dec 60-62.5 Call spreads for $0.50
Risk: $50 per 1 lot
Reward: $200 per 1 lot
Breakeven: $60.50

Abercrombie & Fitch (NYSE: ANF, $28.46) hasn’t been stylish for investors in 2014 – share are off by 13.5% year to date. The stock is scheduled to report earnings prior to the open of Wednesday’s session, with consensus analyst estimates calling for $0.41 EPS on $916.03 million of revenue. One year prior, the company posted EPS of $0.45 (a beat of $0.07) on $1.03 billion in revenue.

ANF stock has traded in a 52-week range of $28-$45.50, clocking its intraday high on August 27. The stock has fallen following 2 of its past 4 earnings reports, and 5 of the past 8. ANF stock has weekly options, offering traders the opportunity to further isolate earnings catalyst movement. The market on the ANF Dec Weekly 28.5 Straddle is $2.70-$3.01, and thus is implying a move of roughly 10.1%. This is slightly below the 10.8% mean move seen over the past 8 quarters.

While recent retail earnings have been relatively strong, Black Friday numbers have been estimated to be poor and could upset ANF guidance. Some have estimated Black Friday spending to be 11% lower than in 2013, which could be particularly disruptive to the budget conscious teen shopper.

ANF Bulls could take heart in the possibility the stock is oversold, but I would not look to allocate risk capital to anything but a short position.

My Trade: Buy the ANF Dec Weekly 26.5-25.5 Put Spread for about $0.25
Risk: $25 per 1 lot
Reward: up to $75 per 1 lot
Break-even stock price at expiration: $26.25

Greeks of this Trade
Delta: Short
Gamma: Long
Theta: Short
Vega: Long

I like this trade because it offers a favorable return on my money, with my downside price target aligned with the measured move target.

Bank of Montreal (BMO) is a Canadian-based provider of personal banking, investment services, mortgage loans, credit lines, and a variety of other banking and financial services for both retail customers and small to mid-sized businesses primarily in North America. As of the time of this post (12:45PM CST), BMO is currently trading at 73.05, down 0.87% on the day. The stock is trading towards the upper end of its 52 week range of 60.34-78.56 as it printed the highs for the year in early September, only to fall to near term lows of 67.42 in mid-October as part of the broader US market pullback. BMO has since recovered over half of these losses, and is set to report earnings pre-market tomorrow, 12/2/2014.

BMO has traded with mixed to negative results the last eight quarters of earnings, trading lower exactly half of the time with a historical-average directional move of 1.1%. It should be noted however that the largest move during this period was a selloff of -4.8% on 12/3/2013 after BMO announced better than expected profits, but also that it would be increasing its quarterly dividend payout. The options market is currently pricing in an implied move of 6.48% by the monthly expiration date of 12/20/2014, which translates to roughly a $4.70 move in the underlying stock. While BMO has found some temporary support on the current daily chart and on the cloud, I will not be looking for a directional play in this stock. Instead I will be looking to trade a neutral strategy and looking to capitalize on the inflated premiums going into tomorrow’s earnings announcement.

BHP Billiton Limited (BHP) is an Australian metals and mining corporation whose primary focus is the production of iron ore and processed natural energy resources such as petroleum. As of the writing of this article (11:15AM CST), BHP is currently trading slightly higher on the day, up 0.37% to 55.40. The stock is currently trading well within the lower portion of its 52 week range of 54.35-73.91 however, just over $1.00 off of the lows for the year which printed late last week. Investor reaction to a potential slowdown in Chinese demand for the company’s industrial metals products has been pointed to as one possible reason for the stock’s steep decline off of 52 week highs which were made in late July.

Today we noticed an interesting block trade taking place in BHP, as a buyer purchased a huge lot of 12,500 Feb ’15 47.5 puts, lifting the offer at $0.59 (total cash outlay of $737,500 before commissions). As this trade went off against an open interest in the option of just 434 contracts, we can safely say this was an OPENING transaction, looking to profit on further anticipated downside in BHP headed into early next year. In addition to this large bearish transaction, a perfunctory glance at the technicals in BHP would also indicate that this stock is primed to move LOWER, as it clings to support just above the recently printed 52 week lows and heads lower, well under the Ichimoku cloud on a daily chart. As such, we will be looking to piggyback this large Put buyer and hope to capture profits as BHP continues its move to the downside.

Trade: I am long the BHP Feb 47.5 Puts for $0.58
Risk: $58 per 1 lot
Breakeven: $46.92