Today after the close Match.com (MTCH) the parent of dating app Tinder will report Q3 earnings. The options market is implying about 12.5% in either direction which is actually below the four-quarter one-day post-earnings move.
Despite the stock being up 64% on the year, it is down 25% from its all-time high made on August 7th the day after Q2 earnings when the stock closed up 24%! Well, the fever has clearly broken, after breaking below the uptrend in Sept that had been in place since its Nov lows, the stock is now sitting on a precarious support level at $70:
While MTCH and Shake Shack (SHAK) are two very different companies and stocks, it is worth noting that SHAK is down 20% today after disappointing earnings last night, down 35% from its all-time highs made in Sept, a month after blowout Q2 results in August:
So what’s the trade? Options in this name are brutal, there are NO weekly options and the strikes are in $5 increments.
If I were inclined to play for a beat and raise, and a short squeeze I would likely just define my risk and play for a move back towards that uptrend, that was support and is now resistance, near $85. With the stock near $70 the Nov 75 – 85 call spread is offered at about $2, breaking even up at $77, 10% from current levels, with a max potential gain on Nov 15th expiration of $8 if the stock is $85 or higher… this is NOT a great risk-reward, risking a little less than 3% of the stock price for 8 trading days with a break-even up 10% and a max potential payout up 21%*. The options market is saying there is only a 36% chance the stock is $75, a 22% chance the stock is $80 and only a 12% chance the stock is $85 on the close on Nov 15th.
If I were inclined to play for a massive move lower similar to what is going on in SHAK today, i might consider a put spread targeting the mid to high $50s in the coming 8 trading days. For instance with the stock near $70 the Nov 65 – 55 put spread is offered at around $2, breaking even down at $63, down 10% from current levels, with a max potential payout of $8 on Nov 15th if the stock is $55 or lower… again this NOT a great risk-reward, risking less than 3% of the stock price for 8 trading days with a break-even down 10% and a max potential payout down 21%*. The options market is saying there is only a 30% chance the stock is $65, a 17% chance the stock is $60 and only a 7% chance the stock is $55 on the close on Nov 15th.
*But we are here to educate and explain why defined risk does not always mean smart risk.