Virtualization software specialist VMware (NYSE:VMW) is scheduled to release its fiscal first-quarter earnings figures after the close of trading this afternoon, so let’s take a look at what we might expect — and how to play a potential move via an options trade.

Analysts expect VMW to report a profit of 70 cents per share, up 6% from last year, with revenue rising 12% to $1.18 billion. The current consensus on the Street is that VMware will easily hit these targets, with EarningsWhipser.com indicating a whisper number of 71 cents per share.

That said, most investors will be paying close attention to VMware’s guidance and growth prospects — especially following last quarter’s disappointing outlook.

As some of you might remember, VMware shares were pummeled in January after the company issued first-quarter revenue guidance that was well below Wall Street’s expectations. The company cited weak federal bookings, slow growth in Europe and a stronger dollar for its poor outlook, and VMware’s adaptation to this environment will heavily scrutinized.

In terms of guidance, the consensus is currently expecting second-quarter revenue of $1.25 billion and full-year revenue of $5.22 billion. Anything short of these figures could create a repeat of VMW’s January plunge.

Taking a closer look at the brokerage community, it appears that analysts are cautiously optimistic on VMW. Specifically, the stock has garnered 21 “buy” ratings, 21 “holds” ratings and just one “sell.” Additionally, the consensus 12-month price target for VMW shares rests at $100, representing a weighty premium of about 35% to Monday’s close at $72.46.

Checking in with short sellers, we find that many used January’s plunge as a way to take profits off the table. In fact, the number of VMW shares sold short dropped by more than half from 10.84 million shares at the beginning of January to 7.04 million shares as of the most recent reporting period. Despite the exodus, more than 9% of VMware’s float — or shares available for public trading — remain sold short, providing ample fuel for a potential short-squeeze situation.

Indeed, short sellers might be a bit concerned about a rally, as VMW call options have become quite popular in recent weeks. Currently, VMW’s May/June put/call open interest ratio rests at 0.75, with roughly 15,500 calls open compared to put open interest of 11,700 contracts.

On the put side, some 2,039 contracts are open at the in-the-money May 75 strike, with another 1,310 contracts at the in-the-money May 80 strike. By comparison, peak call open interest totals more than 4,200 contracts at the out-of-the-money May 80 strike, with another 2,700 calls open at the May 85 strike and 1,200 contracts at the deep-out-of-the-money May 90 strike.

This overhead stratification in call open interest is often typical short seller and institutional hedging activity. In other words, short sellers might be protecting themselves against a potential short-term VMW rally.

Click to Enlarge Technically speaking, there is considerable potential for a short-term bounce in VMW shares. The stock is currently resting just above long-term support in the $70 region. This area is also home to VMware’s February and 52-week lows. Meanwhile, overhead resistance doesn’t materialize until the $76 region — home to VMW’s 50-day moving average — and the $80 region above that.

What’s more, the stock’s 14-day RSI is rebounding from oversold levels, indicating that buying activity is making a comeback for VMW.

Those looking to jump into an options trade ahead of VMware’s quarterly report will want to know that May option implieds are pricing in a post-earnings move of more than 11%. This places the upper bound at near $80.80, while the lower bound lies near $64.20.

Given the low earnings expectations and the stock’s current technical backdrop, I’m inclined to look toward a bullish position ahead of tonight’s report. Taking implieds into account, a May 72.50/80 bull call spread stands a good chance of realizing a profit.

At the close of trading last night, this spread was offered at $3.25, or $325 per pair of contracts. Breakeven lies at $75.75, while a maximum profit of $4.25, or $425 per pair of contracts, is possible if VMW closes at or above $80 when May options expire.

As of this writing, Joseph Hargett did not hold a position in any of the aforementioned securities.