Earnings have stayed steady over the last four quarters, within a range of $0.28 to $0.30 cents. Analysts expect the trend to continue, projecting $0.29 for Q2 and $0.30 for Q3. Overall, 2012 beat estimates by 2% and were up $0.29 from 2011. 2013 earnings are expected to advance $0.09 from 2012, to $1.19. Forbes Magazine rates Red Hat the 4th most innovative company in the world. The company spends 2.5% of its revenue on research and development. Revenue for 2012 was up 24.6% from 2011, to 1.13 Billion.
RHT is down $0.60 for the day, about 1%, trading between 56.73 and 57.81. The 52-week range sits between 37.82 and 62.75. RHT hit a high in the beginning of May, fell almost $12 by June and has been trending higher in a volatile fashion. The market cap is 11.01B. The stock is close to its all time high, not counting a 2-1 split pre-millennium. Tech sector is down almost 1% on the day, with Red Hat’s major competitors all down slightly.
The ATM 57.5 straddle is currently priced around $6.00. This is implying a $6.00 move in either direction, or a 10.5% move. This gives us an upside measure move target near $63.00. The open interest is highest in calls at the 62.5 and 67.5 strike prices.
Trade: Buy Oct 60-65-70 Call Fly for 0.75
Risk: $0.75
Reward: $4.25
Break Even: 60.75 and 69.25
Strategy: If I get a nice move I will generally take off half and let the rest ride to expiration.
