Sotheby’s (BID) is an auctioneer of art and jewelry along with operating finance and dealer units for the brokering of private sales of artwork. Shares of BID are currently trading around $50.05 in a 52 week range of $27.98-$53.61. The stock has been massively outperforming the market this year having added over 52% to share prices year to date. BID is set to report their most currently quarterly earnings on Monday after the close. Analysts are expecting earnings of -$0.47 on revenues of $70.3 million. Historically, the stock is weak on earnings day. The stock has sold off on earnings day 5 of the past 8 quarters with an average move of 3.3%. However the stock is trading very well on a chart. Shares of BID are currently trading well above the Ichimoku Cloud and the future cloud is strongly upward sloping indicating there could be more upside in store for BID. Flows have been bullish in BID as well with large open interest in the Nov 55 call line. Despite the relatively weak historical earnings performance in BID we believe that other factors are lining up well for a long trade in BID ahead of earnings. With the options market currently implying a move of around $3.50 we can look at an upside target around $55 and set up a trade.
Trade: Buying the Dec-Nov 55 Call calendar for $0.60
Risk: $60 per 1 lot
With calendar spreads my maximum reward is dependent on how I manage the trade on Nov expiration. Breakeven levels can only be approximated and are not reliable simply because there are too many variables to take into consideration.