Updates – AMAT, CSCO, WFM Earnings Trade Ideas

by CC February 16, 2017 11:56 am • Trade Updates

We wanted to update a few recent earnings trade ideas we’ve detailed on the site with an eye towards trade management following the event. Let’s start with a Whole Foods (WFM) which reported Feb 8th. Here was the trade idea into earnings, a defined risk long/ stock alternative:

WFM ($29.17) Buy March 30 / 33 call spread for 67 cents

-Buy 1 March 30 call for 82 cents

-Sell 1 March 33 call at 15 cents

The stock is higher following the report and it testing a resistance level, having gotten above its 200 day moving average and now trying to breakout above its 50 day:

WFM 1yr chart from Bloomberg

With the stock 30.83, the call spread is worth 1.10 vs the .67 initially risked. It’s .83 in the money so decay isn’t really much of an issue for a few weeks. The technicals of the stock is most important to watch here. If the stock is unable to get above and stay above the 50 day moving average (30.83) it may make sense to take profits for those that were just playing for a short term move. If it is able to breakout from here it could have a little room to run and could turn into an even better trade. I’d use this level as make or break for the trade, if it fails, take profits, if it goes higher be patient.

The next trade idea to look at was Cisco (CSCO) which reported last night. Here was the initial trade idea from Friday Feb 10th:

CSCO ($31.60) Buy June 32 / 36 Call Spread for $1

-Buy to open 1 June 32 call for $1.12

-Sell to open 1 June 36 call at 12 cents

CSCO ran higher into the report and is even higher on the report itself. With the stock 33.80, this call spread is now worth about 1.90 vs the $1 paid. The obvious target, and one we mentioned in the original post is the 2007 highs. The breakeven on the downside is 33. That may be a good stop to use of the stock reverse as the trade would still be profitable there.

CSCO 10yr chart from Bloomberg

The final trade idea to look at is AMAT from yesterday, which also reported. Considering the stock’s relentless rally over the past year and a half into this event, we though it made sense for those that wanted to play for continued strength to fade the event itself and position for higher higher in the months to come… while risking as little premium as possible. The trade was a slightly out of the money call calendar:

AMAT ($35.67) Buy Feb 17th / April 37 call calendar for 70 cents

-Sell to open 1 Feb 17th 37 call at 27 cents

-Buy to open 1 April 37 call for 97 cents

With the stock down slightly on earnings, this is worth about .65 vs the .70 paid. If the stock went unchanged on the day it would be a slight winner. As far as trade management this is essentially just a long April 37 call at this point. If the stock goes down it will lose on a 31 delta, if it goes higher gain on that delta. It is April so trade management depends on time horizon. If it was short term it may be best to just sell it for close to what was paid an move on. If it was longer term in view, the Feb 27 calls could be rolled to March 27s continuing the calendar. That would further reduce the premium at risk and have a similar bullish, but not too bullish positioning on.