Green Mountain Coffee Roasters: Is A Jolt Coming?

| About: Keurig Green (GMCR)
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By: John J. Critchley, Jr.

Green Mountain Coffee Roasters (NASDAQ:GMCR) will report earnings after the close today. The consensus estimate of analysts covering the specialty coffee maker is $.49, an over 11% increase from last year's third quarter. The revenue number is expected to be $874 million, an 22% increase from last year. (Source: Click Here)

Currently, 15 analysts have a rating on GMCR with 2 maintaining Buy ratings, 6 Outperform, 6 Holds and 1 Underperform/Sell. It is interesting to note that there are only 1 analysts with a negative rating on the company despite the massive underperformance (-82%) of the underlying over the past year. One possible rationale for this lack of sell recommendations by the analyst community is the price movement of GMCR may have left some wondering if the massive selloff from 52 week high of $115.79 is overdone.

Options Plays

Trade idea #1-A Long Options Premium Play

In the last 4 earnings announcements, the company is batting .500, having beaten expectations twice and fallen short the same number of times.

Confused on what to do with the earnings? Long or short? How about playing both ways?

As the chart below shows, the average move post-earnings over the past year has in GMCR has been 31.7%. In the last four earnings cycle, GMCR has moved 47.7%, 23.8%, 38.9% & 16.41% respectively.

This is not a specific trade recommendation, but a trade analysis.

The play:

a) Buy the August 19 2012 weekly 18 straddle for $4.40

Net debit: $4.40

Why the 18 strike line? You are buying the At-the-Money (ATM) straddle for $4.40. The breakevens for this straddle in the underlying are $22.40 and $13.60, respectively. These breakeven points represent a 24.4% move in the underlying. Is that justified? Apparently so if you believe that the past is any indicator of the future as the average post-earnings move in GMCR over the last four earnings cycles has been 31.7%.

Risk: The risk of this trade is $4.40 and may occur if the earnings report does not cause the expected movement in the underlying. Be forewarned. You may lose the entire premium. This play is for speculative monies only.


Trade idea #2-An Upside Play

Buying options that only pay off with a 23% move. A bargain? If you are in the camp that feels this is too rich for your risk tolerance, then we present an upside options play.

There is an enormous short interest of 23.26% and any earnings upside surprise could cause a massive short squeeze. If the premium in the straddle seems exorbitant and outside of your comfort zone, there is a less expensive way to play an anticipated upward move in the underlying.

This is not a specific trade recommendation, but a trade analysis.

The play:

Sell a collar. A short collar consists of selling a downside put and buying an upside call.

Let's sell the August 3 2012 weekly 19 call/17 put collar for a $.35 debit.

The trade is:

A) Long August 3 2012 weekly 19 call @ $1.92

B) Short August 3 2012 weekly 17 put @$1.62

Net debit: $.30

Risk: You will have GMCR stock put to you at $17. In other words, you will be long and own the stock at $17 if earnings are below expectations and GMCR trades below $17. A 7.2% downward move in GMCR in the next 2 days until the August 3rd expiration.

Stay tuned.

Notes: Prices quoted where the prices at time of submission and do not reflect current market prices. You are solely responsible for your own trading and investments decisions and the ideas presented in this article are trade analysis, for educational purposes only and do not constitute buy/hold/sell recommendations

Disclaimer: We are not liable for any trading decisions made by any reader. NO advice is given or implied. The information offered in this article is for demonstration purposes ONLY and should not to be either construed as an offer or considered to be a recommendation to buy or sell any options.

Your use of this information is entirely at your own risk. It is your sole responsibility to evaluate the accuracy, completeness and usefulness of the information. You must assess the risk of any trade with a professional broker, or financial planner, and make your own independent decisions regarding any trades mentioned herein. This is not a solicitation to buy or sell any options, or to purchase or sell any credit spreads. Trading options only carries a high degree of risk, is not suitable for all traders/investors, and you may lose all of your premium money invested in the options. If you have never traded options before, we strongly recommend that you read a little background information made available by the government. Only you can determine what level of risk is appropriate for you. Also, prior to buying or selling an option, a person must receive a copy of Characteristics and Risks of Standardized Options.

Past performances DO NOT guarantee future results. Please consult with your own independent tax, business and financial advisors with respect to any trade. We will NOT be responsible for the consequences of anyone acting on this purely demonstration material.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.