Johnson Controls, Inc (JCI) is currently trading around $53.00 in a 52 week range of $38.60-$53.41. The stock is higher by 3.25% today and touched new 52 week highs on positive earnings news. The stock has been doing well this year with gains approaching 10% year to date. Whats interesting about this action in JCI is that it was very well telegraphed by large options blocks ahead of the release.

The bullish orderflow in JCI began last week when a trader paid $0.45 for 3,005 of the JCI May 52.5 calls. This trade was opened on Apr 16th and open interest in this line grew to over 10,000 contracts ahead of the earnings release. Traders also bought large blocks of the JCI Jul 55 Calls. Last Friday a trader bought over 6,000 of these calls for $0.75. These calls looked weak this morning as JCI showed initial weakness. The stock reversed however and rallied to new 52 week highs making these trades extremely profitable. Let’s break down the traders profit pn each block.

Trade: A trader bought 3,005 JCI May 52.5 Calls for $0.45
Risk: $45 per 1 lot
Reward: Unlimited:
Breakeven: $52.95

These calls traded as high as $1.70 today making this trade an absolute blowout winner, if this trader held this block to the highs they would have profited $375,625 on a $135,000 bet.

Trade: A trader bought 6,512 JCI Jul 55 Calls for $0.75
Risk: $75 per 1 lot
Reward: Unlimited
Breakeven: $55.75

These calls traded as high as $1.70 today meaning if this trader held their position to the highs they would have profited $618,640.

These trades are fantastic examples of why watching orderflow ahead of earnings is important. Both of these trades were absolute blowout winners.

JPMorgan recently sent a letter to large corporate customers (mostly other banks) explaining it will begin charging an annual rate of 1 percent beginning May 1 on any cash deposited in excess of the amount these businesses typically need to fund on-going operations.

Say what?

Yep, itʼs called a “balance sheet utilization fee.” CEO Jamie Dimon has taken this unprecedented step of removing the incentive for customers to deposit large amounts of unused capital in order to reduce his bankʼs liabilities and comply with mandated de-leveraging in an era of increased regulation. If this seems odd, just remember that deposits are counted as liabilities (money the bank owes), versus loans which are counted as assets (money owed the bank). Mr. Dimon is trying to reduce his liabilities, and targeted customers have withdrawn about $20B since February according to data complied by Bloomberg. Ultimately, Mr. Dimon expects withdrawals of $100B, about 0.75 percent of total JPM deposits.

Negative interest rates here at home were perhaps inevitable. With the European Central Bank purchasing roughly twice the amount of new monthly sovereign debt issuance in Europe, 55 percent of the EUʼs $5.3T sovereign bonds now trade at negative yields according to Bank of America. Even LIBOR has gone negative this week, meaning European banks must effectively pay one another a storage fee. This is not what we learned in Economics 101, but it is the new reality of ECB President Mario Draghiʼs pledge to “do whatever it takes” to reduce cash hoarding and spur risk taking.

JPMorganʼs customers will not likely withdraw their cash in order to to buy Europeʼs money-losing bonds, since they can accomplish the same task by staying at the bank. Instead, they (and the rest of us) have to find other assets which actually pay interest… namely U.S. Treasuries.

With the spread between U.S. and German 10-yr bonds at fifteen year highs, we would argue the U.S. bond at 1.96 percent actually look attractive, especially since four Federal Reserve bank presidents this week have reiterated their commitment to long-term accommodative policy.

Negative sovereign debt of highly indebted countries in Europe, and a negative deposit rate at one of the biggest banks at home. Upside down indeed.

Facebook Inc. (FB) stock is currently trading at $84.25 and is seeing a small bid higher today as shares are trading higher by just over 0.75% on the day. FB stock has been trading in a 52 week range of $54.66-$86.07 and has been relatively strong this year with shares rallying 7.75% year to date. FB is set to report their most recent quarterly earnings after the bell today. It would appear that traders are buying into the release of the report as Fb typically rallies on earnings day.

Over the past 11 quarters FB has rallied on earnings 8 times and on average moves around 9.36% on earnings day. FB stock has also rallied from earnings day to the nearest options expiration 7 of the past 11 quarters. FB is also looking very strong on a chart. The stock is well above the Ichimoku Cloud and well above both of its major moving averages on the cloud. With the options market implying a move of around $4.70 (5.6%) by Friday’s close a move higher would represent a new all-time high for FB.

Using the implied move calculated by the options market a trader can develop an upside target of $88.95 for this Friday. Using that target I can then set up a strategy in the options market.

Possible trade: Buying the FB Apr 24th Weekly 87-89 Call Spreads for $0.55
Risk: $55 per 1 lot
Reward: $145 per 1 lot
Breakeven: $87.55

This trade offers a trader nearly 3-1 reward to risk ratio and a breakeven point well inside the measured move target implied by the options market.

D.R. Horton, Inc (DHI) is a U.S. based home builder that builds and sells homes in states and cities across the country. DHI is currently trading around $28.70 in a 52 week range of $19.29-$29.29. The stock has been doing very well this year with shares rallying nearly 13.7% year to date. The stock looks very strong on a chart and is seeing a rally today of 2.5% ahead of releasing earnings tomorrow morning.

DHI has a very strong historical performance record on earnings. Over the past 12 quarters the stock has rallied 8 times on earnings day. The stock has also moved higher from earnings day to the nearest options expiration 9 times in the past 12 quarters. The stock is looking strong on a chart as well with shares trading well above the Ichimoku Cloud and the future cloud implying a sustained bull trend. With such strong technical and historical setups I would want to get long DHI into earnings.

On average DHI moves 6.57% on earnings day. This time around market makers are implying a move of around $2.05 by this Friday’s expiration. Using this implied move I can calculate an implied upside close for DHI on Friday then use that level as a target for an options trade. With stock at $28.70 that gives me an upside target of $30.75.

Possible trade: Buying the DHI Apr 24th Weekly 30-31 Call Spreads for $0.25
Risk: $25 per 1 lot
Reward: $75 per 1 lot
Breakeven: $30.25

This trade sets up with a 3-1 reward to risk ratio and gives a trader bullish exposure with a limited downside risk.

International Business Machines Corporation (IBM) is technology company that operates five different business segments around the world. IBM stock is currently trading around $164.50 in a 52 week range of $149.52-$196.86. The stock has been relatively sideways this year with shares rallying around 2.5% year to date. IBM is set to report their most recent quarterly earnings today and stock is trading higher ahead of that release despite IBM stock’s dismal historical performance on earnings day.

IBM has sold off on earnings day 9 of the past 12 quarters and has sold off from earnings day to options expiry 10 times in the past 12 quarters. The stock is trading above the cloud on the daily chart but is above a sideways future cloud. On average the stock moves around 3.7% on earning day but ahead of this report market makers are implying a move of around $6.00 (3.6%). With that implied move we can calculate a downside target of $158.50. With such a weak historical performance record I can only look to get short IBM into earnings.

Possible trade: Buying the IBM Apr 24th Weekly 160-157.5 Put Spreads for $0.55
Risk: $55 per 1 lot
Reward: $195 per 1 lot
Breakeven: $159.45

This trade offers a trader nearly 4-1 on their money and has a breakeven above the implied downside target.

Hasbro, Inc. (HAS) offers toys, games, entertainment products and various television and motion picture offerings through a variety of brands. The company’s stock is currently trading around $66.25 in a 52 week range of $48.01-$66.32. Stock has been on a tear this year and is very near to its 52 week highs. HAS has rallied over 20% year to date and is looking like it could add more gains on their most recent quarterly earnings report set to be released on Monday before the market opens.

HAS has an extremely strong historical earnings performance record. Over the past 12 quarters the stock has rallied 9 times on earnings day with an average move of 4.93%. The stock is also very strong on a chart with shares of HAS trading well above the Ichimoku Cloud. The cloud is also strongly upward sloping implying further upside for HAS. Market makers are currently implying a move of around $4.25 by May expiration which gives us an upside target of $70.50 by May expiry. Using this target we can then set up a potential options strategy to get long HAS ahead of earnings.

Trade: Buying the HAS May 67.5-70 Call Spreads for $0.75
Risk: $75 per 1 lot
Reward: $175 per 1 lot
Breakeven: $68.25

This gets a trader long through May with a point of max profit right at the implied target. This trade also offers a trader better than 2-1 on their money.

Officials in the EU have accused Google of placing links for products on its own shopping service above those of it competitors. Officials state that this essentially amounts to abuse of the firm’s market share to give them an unfair advantage over its competitors. The main complaint that officials have is that if Google is purposefully pushing its own results higher search results may not best represent what customers are looking for.

Despite the actions taken by the EU shares of GOOGL are trading higher today. Google Inc (GOOGL) stock is currently trading around $542.00 in a 52 week range of $490.91-$608.91. GOOGL has been relatively sideways this year with shares higher by only 2% on the year. The next quarterly earnings release on April 23rd may provide a catalyst for the stock as it is historically strong on earnings.

GOOGL has rallied 5 of the past 8 quarters with an average move of 4.9%. This time around market makers are implying a move of around $23.00 by next Friday’s close indicating an expected move of 4.2%. If a trader expected GOOGL to rally on earnings how could they trade it? Typically we opt for spreads ahead of earnings as that helps shield the position from the expected drop in implied vol after the event. Using the implied move we can calculate an expected upside target of $565.00 by expiration and then structure a trade around it.

Trade: Buying the GOOGL Apr 24th weekly 555-565-575 Call Fly for $1.10
Risk: $110 per 1 lot
Reward: $1890 per 1 lot
Breakeven: $556.10 and $573.90

This trade profits in a wide range and gives a trader a huge reward to risk setup.

Bank of America Corporation (BAC) is currently trading around $15.80 in a 52 week range of $14.37-$18.21. The stock has been relatively weak this year with shares falling by nearly 12% year to date. BAC is set to report their most recent quarterly earnings tomorrow morning before the bell. Analysts are looking for earnings of $0.29 per share. The stock is relatively flat ahead of the report but historical data suggests that the stock could sell off on the release.

BAC has sold off on earnings day 8 of the past 12 quarters with an average move of around 4.15%. The stock has only rallied from earnings to options expiry 3 times in the past 12 quarters. BAC is also looking very weak on chart. The stock is trading well below the Ichimoku Cloud on the daily chart and both key moving averages on the cloud are also below the Ichimoku Cloud. Currently market makers are implying a move of around $0.54 in BAC stock by this
Friday’s expiration. This can be used to calculate an implied downside close of $15.26.

With both technical and historical weakness in BAC I will be looking to get short ahead of earnings. Using the downside target implied by the market maker I will put on a bearish options trade.

Potential Trade: Buying the BAC Apr 15.5 Puts for $0.14
Risk: $14 per 1 lot
Breakeven: $15.36

Aston Martin revealed its plans for a plug in electric version of its Rapide S supercar. Aston Martin CEO Andy Palmer announced that the car should be available in two years’ time and while it may not pose an immediate threat to Tesla Motors, it threaten to unseat them as the premier manufacturer of luxury electric vehicles. The electric Aston Martin will be priced well above the entry level Tesla model at around $200,000.

While this may only appeal to consumers that would be interested in TSLA higher end models the company also faces competition from automakers like General Motors (GM). GM has announced plans to release a longer range electric car in 2017, the same time that TSLA’s model 3 is scheduled to come out. Despite increasing compaction in both the high end and mass markets TSLA investors seem to have found some renewed optimism on the back of record breaking sales in Q1.

TSLA shares are currently trading around $210.00 in a 52 week range of $177.22-$291.42. The stock is down over 5% this year but has been rallying hard over the past month. Shares of TSLA have rallied over 10% in the past 30 days and has broken back above key technical resistance as determined by the Ichimoku Cloud. With TSLA trading at the high dollar amount that it does traders may be hesitant to invest all of the necessary capital it would take to carry a large TSLA position. However, a trader may choose to run a stock replacement strategy to get long TSLA momentum with much less risk that outright stock.

Trade: Buying the TSLA Sep 180 Calls for $41.00
Risk: $4100 per 1 lot
Reward: Unlimited
Breakeven: $221.00

This trade has a breakeven higher than the stock’s current price but with a delta of 75 these calls will have a profit and loss profile very similar to the underlying stock.

LinkedIn Corporation (LNKD) is an online network for professionals with over 300 million users in countries around the world. The company’s stock is currently trading around $250 in a 52 week range of $136.02-$276.18. The stock has been relatively strong this year with shares rallying more than 9% year to date. The stock is little changed today despite the announcement the firm would be undertaking its largest acquisition ever.

LNKD announced that they will be acquiring online education company Lynda.com for cash and stock in a deal valued at $1.5 billion. This acquisition should add revenue growth to LNKD as Lynda.com is a profitable company. Lynda.com offers its customer’s web based access to learning programs on a wide number of topics. The company sells these services via a subscription based model but also offers larger enterprise solutions to larger private and government organizations.

There are clear synergies between the two companies as LNKD will now be able to direct users to educational courses that will help them develop the skills needed for specific jobs. With more and more money flowing into the online education space how can a trader use options to bet on further growth for LNKD on the back of this acquisition? LNKD is a high priced stock so a trader would have to invest a large amount of capital to own the underlying stock. However, they can use a stock replacement strategy to replicate the P/L profile of the stock while only investing a fraction of the capital.

Trade: Buying the LNKD Aug 220 Calls for $41.00
Risk: $4100 per 1 lot
Reward: Unlimited
Breakeven: $261.00

This gives a trader a breakeven higher than the stock’s current price but with these calls trading with a 75 delta they will behave very much like the underlying stock.