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