The first graphic is a daily bar chart of price’s reaction to the past six earnings announcements from RIMM. Action after the event is rather bearish; in most of the sample set, four of the six observations, RIMM went down, but when it did indeed go up it promptly filled or reversed the day after. The gap is price’s way of adjusting to new news. While this gap may seem inefficient, the derivatives market, in most cases, was expecting said move given RIMM’s implied volatility.

Now to what is implied for the coming event, because the RIMM weekly options only have one day until expiration, they will be an organic way to derive what is implied for the event today after the close. Using a KOTM implied volatility & time-based model, we calculated the one-sigma move (68% probability within) to be roughly $1.32 up or down (or about 68% chance we settle between $$14.95 and $12.30 by the close on Friday). The two-sigma move (95% probability within) is $2.65 either way (or between $16.28 and $10.97). This is important because traders can place long/short strikes at these probability levels. The implied volatility curve (IV being a measure of risk, supply and demand, relative price, and an input into theoretical models) is displayed below, for it is vital to know, especially if one is trading two different months in a spread.

The following chart includes the one and two sigma rolling probability cone, volume profile, and major moving averages (50, 100, 150, & 200). RIMM has been raging since September’s report, up over 100%. With that in mind, RIMM has been rejecting lower price levels as long-term traders take hold, moreover we are at the upper portion of the 6 month volume distribution. The 50 DMA will cross over the 200 DMA any day now forming the golden cross. On expiration Friday, the 50-day will sit n

early 27% away from current prices. This rally seems to have the characteristics of a short squeeze, for candlesticks have been long and violent. The ATM (at the money) front month $13.5 straddle (lifting the offer) is at about $1.48 (10.8% of stock). Deltas move to one faster near expiration, it is therefore easy to calculate immediate post event break evens, $15.11 & $12.15.

Feel free to e-mail any comments, feedback, suggestions, or general inquiries to… Author@ salernoma@mx.lakeforest.edu

Trade:  Buying the 13.5-12.5-11.5 Put Fly for $.18
Risk: $18 per 1 lot
Reward: $82 per 1 lot
Breakeven: $11.68 and $13.22

Measured Move Targets: $12.50 or $15.50

Paper sold 5000 FOLD Jan 2.5 Puts for $.10 (7.5 times usual volume)
when stock was trading $3.21
Paper sold 2840 RHT Dec 52.5 calls for $1.90 (5.9 times usual volume)
when stock was trading $52.98
Paper bought 734 CBOE Jan 30.25 Puts for $.40 (10.6 times usual
volume) when stock was trading $30.79
Paper sold 1259 SNE April 10 Puts for $.50 (5.8 times usual volume)
when stock was trading $10.97
Paper bought 9929 $GLD March 170-185 Call Spread $.78 (2.2 times usual
volume) when stock was trading $158.74

H: Historical Movement over last 4 Quarters

I: Implied Movement: How much is the Market Makers Implying the Move will be

M: Measured Move Target: Always two targets, an upside and downside based on the ATM Straddle

C: Chart: Does the Chart look Bullish or Bearish on the Daily

R: Risk? How much of my book I am willing to lose on this trade

R: Reward? Always want to have a good risk vs reward set-up

T: Time: What Month am I trading

T: Target: Where do I think the stock will go.

Analysts estimate revenue of $2.73 billion, which is up 16.5% from last year.  BBBY has shown year-over-year revenue growth in both of the two previous quarters. In Q2, revenue rose 12.1% from the previous year and Q1 revenue rose 5.1%.  BBBY ranks 2^nd in quarterly revenue growth year-over-year compared to 7 other companies within its industry.

Currently BBBY has a (ttm) P/E ratio of 14.03 and ranks 2^nd out of 7 companies considered leaders within the home furnishing industry.  This method of valuation can be used as a measure of a company’s past performance and takes into account future growth expectations.

Chart provided by S&P Capital I.Q.

Author: Tyler Sciortino

Current Student at Roosevelt University, Majoring in Finance.

Contact for questions or inquiries at tsciortino@mail.roosevelt.edu

Looking back at Nike’s first quarter, they had earnings of $1.27 with an estimate of $1.12, so a beat by $.15. The stock actually sold off the following day from poor gross margins, higher SG&A and increased tax rates. If this is a tell-tell sign about increased tax rates there is definitely going to be some concerns over ‘fiscal cliff’ tax increases…something to keep in mind.

How about that chart?

The daily chart is showing no clear direction of trend, but when you look at the Bollinger bands you can see how they are squeezing down and indicating a big move. The 50 and 200 moving averages are also flat and this usually indicates a bigger move in the near future…and what better timing then an earnings report to make that move!

I’m not currently holding NKE and do not plan to going into earnings, but I am looking for a 5%+ move after the bell. Those flatting moving averages and squeezing Bollinger bands are too enticing.

Author: Peter Nitso

pnitso@yahoo.com