Bulls Pushing Green Ahead of 3-Day Weekend
We mentioned we would cover strangle option trades in more detail today as we have profiled a number of high double and triple-digit winners over the past several weeks.
The Earnings Section in our Weekly Wrap profiles a bevy of possible option trades based on our research on stocks that could move 10%-20% in a day.
Annie's (BNNY, $36.26, down $0.66) came into the week at $41.96 and we said to expect a 10% move. Shares fell to $38 on Tuesday after Monday's earnings announcement and under $35 on Wednesday and Thursday. This was a 15% drop.
The February 40 puts (BNNY140222P00040000, $3.50, up $0.20) came into the week at 65 cents and peaked near $5 midweek while the February 45 calls (BNNY140222C00045000, $0.05, flat) were at 50 cents and will likely expire worthless. The puts and calls together would have cost around $1.15, or $115, on Monday's open. At current levels, the trade is up over 200% and could have made over 400% if managed correctly.
Trimble Navigation (TRMB, $37.32, up $0.40) was just under $32 on Monday's open and we said shares would zoom past $34 or fall below $29 on Tuesday afternoon's earnings.
We said a great way to play the earnings move was with a strangle option trade with the February 32.50 calls (TRMB140222C00032500, $5.00, up $0.50) and the February 30 puts (TRMB140222P00030000, $0.05, down $0.05).
The February 32.50 calls were at 85 cents and have surged over 400% for the week while the February 30 puts were at 50 cents and will likely expire worthless. This trade would have cost $1.35, or $135, for one contract of each aforementioned call and put option. With the calls pushing $5, they have easily offset the loss in the puts.
Another stock that made a monster move was Sketchers U.S.A. (SKX, $35.33, down $0.43). Shares were up nearly 20% yesterday following their earnings announcement after the move from just under $30 to $36.
We have followed this company for years and have traded it in the past. We have been both bullish and bearish on the stock.
Shares were at $28.99 to start the week and we mentioned they have been volatile of late. We also said Sketchers usually makes dramatic moves around earnings and that a strangle (or straddle) option trade might be the best way to play the earnings announcement.
The February 30 calls (SKX140222C00032000, $5.40, down $0.45) came into Monday's open at 90 cents and soared 314% yesterday after pushing a high of $6.
This trade could have been maxed out for a little more if we had left off the February 28 puts (SKX140222P00028000, $0.05, flat) at 75 cents but we would have wanted them as protection as Sketchers has posted sketchy earnings in the past.
Cliffs Natural Resources (CLF, $23.21, up $1.31) started the week at $20.82 and we talked about their upcoming earnings that would be coming out after Thursday's close.
The February 22 calls (CLF140222C00022000, $1.35, up $0.50) were at 65 cents on Monday morning and were going for 85 cents into yesterday's close. They have traded up to $1.62 today as shares reached $23.50.
The February 19 puts (CLF140222P00019000, $0.04, down $0.12) were at 52 cents. Although they have taken a hit, this trade would have returned nice double-digits.