Two momentum names. Two key earnings events. But that’s where the similarities end from last Friday’s Options Action.
Our first trade centered on Green Mountain, perhaps the most famous member of the “Pretty Girls Index.” GMCR reports earnings after the close Wednesday, and options prices are implying a 15% move. That may sound like a lot, but it’s actually well below the stock’s eight quarter average of a 22% move.
So to take advantage swollen prices for options, Dan Nathan of riskreversal.com sold the Feb Weekly 60-strike call for $1.35 and used that money to purchase the March 60-strike call for $3.05, completing his call calendar for a total cost of $1.70. Since there are two expirations, this trade does require some measure of trade management. Ideally, you want Green Mountain stock to be just below that 60-strike call on the first expiration, and above $60 by the second expiration. Dan’s bullish view was more about the technicals than fundamentals. (GMCR) has a massive short interest, and just the whiff of any good news could send the stock soaring ala Netflix . Dan’s trade and breakdown are below.
DAN’S GREEN MOUNTAIN TRADE
- SELL FEB WEEKLY 60-STRIKE CALL FOR $1.35
- BUY MARCH 60-STRIKE CALL FOR $3.05
HOW DAN'S GREEN MOUNTAIN TRADE MAKES MONEY
- PROFITS ABOVE $61.70 ON MARCH EXPIRATION
- LOSSES BELOW $61.70 ON MARCH EXPIRATION
The second trade involved Amazon , which reports after the bell tomorrow. Options prices suggest an 7% move on earnings, which is slightly below its eight quarter average of 8%. However, according to the Carter Worth of Oppenheimer, Amazon is a mess, with the stock trading well below a defined downtrend and with its 150-day moving average having recently turned negative. Amazon has been one of the trickiest stocks to short, and as a tactical play ahead of earnings, Mike Khouwsuggested buying the February 185/165 put spread for $3.90. His trade and breakdown are below.
MIKE’S AMAZON TRADE
- BUY FEB 185-STRIKE PUT FOR $4.70
- SELL FEB 165-STRIKE PUT FOR $0.80
HOW MIKE’S AMAZON TRADE MAKES MONEY
- PROFITS BELOW 181.10
- PROFITS CAPPED AT 165
- LOSSES ABOVE 181.10
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