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.