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

Hewlett-Packard Company (HPQ) provides computer hardware and software products for individuals and small to medium sized businesses, in addition to offering a wide variety of enterprise services such as hosting, storage and networking solutions to its larger commercial end users. As of the time of this post (9:35AM CST), HPQ is currently trading up modestly on the day to 37.90, a gain of 1.07%. The stock is trading in the upper end of its 52 week range of 25.09-38.25, as it has recovered well from a pullback in mid-October following news that the company plans to split into two separate companies that could better focus on their respective business concentrations by the end of the fiscal year 2015. Hewlett-Packard will be split into Hewlett-Packard Enterprise to focus on its storage, networking and other enterprise services, and HP Inc. which will remain focused on computing hardware and software and the company’s foray into 3D printing. HPQ is set to report earnings today, 11/15/2014, after the market close.

HPQ has traded with evenly mixed results following the last eight quarters of earnings, posting four higher sessions and four lower sessions immediately following the EPS release. While the directional reactions have been largely mixed, HPQ has shown some degree of consistency in terms of its volatility following earnings, posting an average historical move of around 9.8% during this time period. Currently the options market seems to be under pricing the anticipated move in HPQ at just 3.73%, representing a $1.42 move in the underlying stock based on the current pricing of the ATM straddle. As HPQ has rebounded well following the digestion of the announced split and the stock remains well above the cloud, relevant moving averages and continues to press its 52 week highs, I will be looking to get long this name into earnings this afternoon.

Trade: Buying the HPQ Nov 28th Weekly 38.5-39.5 Call Spreads for $0.28
Risk: $28 per 1 lot
Reward: $72 per 1 lot
Breakeven: $38.73

Deere & Company (DE) is a manufacturer of heavy machinery and vehicles for a range of agricultural and construction applications. The company’s stock is currently trading around $87.50 in a 52 week range of $78.88-$94.89. The stock has been underperforming the market this year having sold off 4.31% year to date. Technically, the stock is trading in bullish territory, above the Ichimoku cloud, but the stock is set to report earnings before the bell tomorrow.

DE has been very weak on earnings over the past 8 quarters. The stock has sold off on earnings day 7 of the past 8 quarters with an average move of 2.6%. Currently the options market is implying a move of around $2.30 by Friday’s close which prices in a move of around 2.63%, right in line with the historical average. Despite the strength DE may be showing technically the stock does appear to be relatively weak in today’s session. With a dismal historical performance record it is difficult to justify anything but a short in DE ahead of earnings. Using the move being implied by the options market I am looking to get short DE with a downside target of around $85.20.

Trade: Buying the DE Nov 28th Weekly 86-85 Put Spreads for $0.23
Risk: $23 per 1 lot
Reward: $77 per 1 lot
Breakeven: $85.77

Hertz Global Holdings, Inc. (HTZ) is an international provider of vehicle and equipment rentals to individual, professional, and corporate customers. At the time of this post (12:00PM CST) HTZ is currently trading at 24.30, up 2.2% on the day. The stock has traded in a fairly wide 52 week range of 18.50-31.61, though most of the volatility in share prices has taken place just over the last few months. 52 week highs printed in Hertz in late August, but the stock was unable to hold its gains and sold off hard into the lows just two months later on news of continued accounting reviews and mixed investor sentiment regarding activist investor Carl Icahn’s 8% stake in the company. Hertz has managed to rebound off of these lows however, and has held up fairly well following last Friday’s news that the company had found its new CEO in John Tague. HTZ is set to report earnings today, 11/24/2014 after the market close.

Over the past eight quarters, HTZ has traded with mixed to negative results following earnings, trading lower on 5 out of 8 sessions immediately following the EPS release. HTZ has been a relatively modest mover on these sessions, with an average historical move of just 1.6% during this time period. The options market is currently pricing in a move of about 3.87% or $0.95 in the underlying stock following this afternoon’s report. Despite the recent rebound in HTZ as it has rebounded off of 52 week lows last month, I will be leaning towards a resumption in bearish sentiment, and looking to get short this name into earnings.

Tiffany & Co. (TIF) is a company that operates in five segments around the world offering jewelry and other luxury goods such as timepieces and leather goods. The company’s stock is currently trading around $103.70 in a 52 week range of $80.29-$105.66. The stock has done relatively well this year with shares rallying by over 11.5% year to date. TIF has seen a large spike in options volume today as more than 13 times the average daily options volume has already traded in the name today. TIF is expected to report earnings tomorrow morning before the bell.

TIF has been relatively strong on earnings over the past 8 quarters. The stock has rallied 5 of the past 8 quarters with an average move of 4.0%. TIF is now beginning to look bullish on a chart as well. The stock is now well above the Ichimoku Cloud and is also trading above both of its major moving averages on the cloud. With the options market implying around a $3.50 move in TIF by December expiration this would give me an upside target of around $107.20.

Potential Trade: I sell the TIF Dec 105-100 Put Spreads for $2.25
Risk: $275 per 1 lot
Reward: $225 per 1 lot
Breakeven: $102.75

The Gap, Inc. (GPS) is a U.S. retail operator that sells apparel and accessories for men, women and children directly to consumers. Besides just operating its Gap retail stores, the company’s corporate umbrella also includes well-known retail apparel chains such as Banana Republic, Old Navy, and several lesser recognized brands as well. At the time of this post (10:30AM CST) GPS is currently trading at 39.95, up around 0.40% on the day. The stock has traded relatively tightly over the course of the past year, in a 52 week range of 35.46-46.85. The highs for the stock were printed in early September, followed by a sharp decline down to the lows in early to mid October on an unfavorable investor reaction to news that current Growth, Innovation and Digital president Art Peck, would become the company’s new Chief Executive Officer in February 2015. The stock has since found support and has traded up strongly over the past month after digesting this news. The Gap, Inc. is set to report third quarter earnings today, 11/20/2014 after the closing bell.

GPS has traded neutrally to relatively bullish historically following the last eight quarters of earnings reports, posting a positive day on 5 out of 8 sessions immediately following the EPS release. GPS has not been a very volatile post earnings mover over this time period, posting an average historical move of just 1.6%. Considering the historical average over the past two years, the options market is currently projecting an outsized move on third quarter earnings of around 3.75% or a $1.50 move in the underlying stock. GPS remains very strong technically, trading into the Ichimoku Cloud and remaining above all relevant moving averages. As the near term bullish trend appears to remain firmly intact, I will be looking to initiate a long position into the earnings release this afternoon.

“Keurig Green Mountain, Inc. (GMCR) is a producer and seller most well known for its single-serve Coffee, Tea, and Hot Cocoa beverage products. Keurig Green Mountain distributes these offerings as well as larger coffee bean products and other specialty beverage items both wholesale to retailers and directly to consumers via its website. GMCR at the time of this post (11:30AM CST) is currently trading at 155.15, down 1.26% on the day. GMCR is still well within the upper area of its 52 week range of 60.65-158.87, coming off of fresh highs for the year that printed during yesterday’s session. The company is set to report its third quarter earnings today after the closing bell.

GMCR has traded with mixed to bullish reactions following the last two years of earnings reports, moving higher on 5 out of 8 of these sessions. The average historical move post-EPS through this period has been 14.9%, although it is noteworthy that the average move with a positive reaction has been a much higher 21.68%, with smaller relative changes in the stock price following the three negative earnings reactions. The options market is currently pricing in a relatively moderate move of 13.10 in GMCR, which would represent just an 8.45% change in the underlying stock. As the stock is currently trading extremely well, just off its freshly made 52 week highs and above the upward sloping Ichimoku Cloud and all relevant moving averages, I am bullish this name and looking to put on a long position into the earnings release this afternoon.”

Target Corporation (TGT) is one of the top-10 largest retailers in the U.S., providing a wide selection of household goods, apparel, electronics, personal care items, pharmacy services and more. Nearly 200 of Target’s approximately 1,800 U.S. brick & mortar locations are known as “SuperTargets”, and also provide a full range of grocery, deli and fresh bakery items on top of the standard offerings. Target Corporation is set to report third quarter earnings 11/19 before the opening bell, and as of this post (11:00AM CST), TGT is trading around 66.80, down a modest 0.50% on the day and still well within the upper area of its 52 week trading range of 54.66-68.28.

Earnings reactions from the last eight quarters’ reports have been evenly mixed, with TGT trading higher exactly half of the time (4 out of 8 sessions immediately following the EPS release), with an average historical move during this period of approximately 4.2%. The options market is currently implying a move of approximately $2.50 in TGT following tomorrow’s EPS release, which would represent about a 3.73% move in the underlying stock, slightly below the historical average. Also as mentioned above, TGT is trading strongly just off of the highs for the year, and remains above both the upward sloping Ichimoku Cloud and the relevant moving averages. For these reasons, I am currently bullish TGT and will be looking to get long into the earnings report tomorrow.

Lowe’s Companies Inc. (NYSE: LOW, 58.35) has been building investor portfolio’s in 2014, with share up over 17% year today. The stock has traded in a 52-week range of $44.13-$59.16, having made a new high in Monday’s session.

Lowe’s quarterly earnings report is scheduled for Wednesday morning before market open, with consensus analyst estimates calling for EPS of $0.58 on revenues of $13.55 billion. For the same quarter one year prior, Lowe’s beat analyst estimates by $0.01 with EPS of $0.48 on $12.96 billion in sales.

LOW stock offers no serial options, however, standard November contracts have 3 days left till expiration Friday and are thus trading in the same manner as weeklys would. The LOW Nov 60 Straddle is trading $2.64-$2.82, implying a move of about 4.7%. LOW stock has moved an average of 4.2% over the last 8 quarter son earnings news, with the options market forecasting an above average move for this quarters announcement. LOW stock has rallied on 2 of the past 4 earnings announcements, and 4 of the past 8.

Home Depot (NYSE: HD, 96.95) recently sold off following a strong earnings report, but concerns were raised on the call over litigation costs following the company’s recent data breach where consumer credit card info was infiltrated. It is reasonable to expect Lowe’s to report similarly strong numbers without the associated legal costs, so I will look to play LOW to the long side.

My Trade: Buy the Nov LOW 60-62.5 Call Spread for $0.50
Risk: $50 per 1 Lot
Reward: Up to $200 per 1 Lot
Break-even stock price at expiration: $60.50

This trade is somewhat aggressive due to the fact the strikes are $2.50 wide (remember, these are Nov serial contracts, not weeklys) and this sets up somewhat past the upside measured-move target (about $61.25). However, the trade does have the potential to pay 4:1 on my money and thus offers a favorable risk reward setup.

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

Home Depot (HD) is a retailer that provides a variety of home improvement products and services to both DIY and professional end-users. As of 11:00AM CST the company is currently trading around $98.40 (+0.22%), on the upper end of its 52 week range of 73.96-99.36. The stock is up overall on the year after trading in a tight $4.00 range from January through August. HD is set to report earnings pre-market on 11/18.

Historical earnings data on HD from the last 8 quarters has been largely bullish, with the stock trading higher 7 out of 8 sessions immediately following the EPS release, with an average move over those sessions of 3.2%. The options market is currently implying a move of about $3.50 in the stock by this week’s November expiration, which implies a 3.5% move on earnings, just slightly higher than the recent historical average. Coupled with Home Depot’s bullish tendency to trade higher post-earnings as emphasized above, I will be looking to put on a long position into the earnings release.