“Freeze or we’ll shoot!” In my head and amidst a technical base breakout attempt in Taser International, Inc. (NASDAQ:TASR) in Thursday’s first half, I could almost hear those words being uttered by Taser stock’s opposing legion of bears, whose ranks are nearly 28% of TASR’s float.
I searched for a catalyst behind Thursday’s early bullish interest in TASR shares, but I’m here to report I was left mostly empty-handed, other than a half-dozen stories about Taser mishandling, spearheaded by a questionable but apologetic “I’m sorry” situation involving an Oklahoma sheriff’s deputy.
So maybe investors are just climbing a wall of worry in TASR? Could be. It happens all the time in the market, which is known to be a forward-looking mechanism. When and if news that warms the cockles does come around, it’s generally late to the party.
In Thursday’s incident report though, bullish TASR investors did wind up standing down or backing off from the intraday breakout attempt. At the close Taser stock was up a respectable 2.5% at $27.83. However, shares of TASR finished nearly 3% below its intraday high of $28.61 and fell back below its prior high of $28.30 and breakout level.
TASR Trading Chart
Technically and not withstanding Thursday’s second-half weakness, TASR’s price action is overall constructively bullish as the stock has built a nice base as of late, as denoted by the green rectangle.
The most recent earnings event in February (blue triangle) triggered a sell-off in Taser stock. But the downside reaction and shortly thereafter bearish “cozy financial ties” news stories, pretty much marked a corrective low in shares of TASR.
To that end and also bullish, the daily chart shows the low in TASR held narrowly above key prior highs established back in early 2014. Incidentally, that resistance was cleared by a period of similar, but slightly more modest, base-building.
TASR Earnings
Taser is set to report on April 30 before the opening bell, when analysts expect the company to deliver profits of 6 cents a share. Last quarter, TASR fell a bit more 16% missing earnings forecasts by a penny, coming in with a profit of 9 cents. It was the first earnings miss for TASR in eight quarters.
In general TASR shares are erratic and mixed after reporting. Since clawing its way back from the single digits and over the last six quarters, TASR has delivered three reports where the immediate reaction was up the next trading day by 14.7%, 16.2% and 7.5%.
Conversely, declines of -0.9%, -5.4% and most recently -16.1% in TASR show a stock that cannot only move lower, but can also exhibit a range of variability that’s hard to quantify.
The takeaway here is both bullish and bearish TASR stock traders are at risk of getting stung due to the real potential of damaging countergaps or hard and fast moves away from the desired price objective.
One way to remove the potential sting of larger-than-expected losses and improve your probability of profiting is with a long bull call strategy if you’re optimistic shares of TASR are headed higher. Likewise, using a bear vertical if you side with TASR stock’s high short interest makes sense.
TASR May Bull Call Spread
Referring back to TASR’s trading chart, implied prices (blue line) are moving higher into the earning’s report. It’s more likely than not even higher readings will show up as the event draws closer. But that’s more of an illusion and not necessarily bankable as its related to shrinking vega risk that has less impact per point change in volatility and increasing time decay risk, which poses a real threat to long contract positions nearing expiration.
With this in mind and based on our historical observations that TASR stock isn’t exactly a straight shooter when it comes to its post-earnings reactions; a vertical spread is attractive. With long bull or bear verticals, the spread cuts down premium, volatility and time decay risk, allow for closer breakeven points and deliver limited risk positioning with nice returns on investment possible.
Given today’s overall bullish thesis for TASR stock, the May $28/$30 call spread for 80 cents is priced well at less than 3% of stock risk, while allowing for $1.20 in profit that’s 50% greater than the debit. Additionally, the maximum profit is about 8% above the current share price of TASR, while the average earnings move for the past six quarters has been in the vicinity of 10%.
As of this writing, investment accounts under Christopher Tyler’s management do not own positions in any of the securities or their derivatives mentioned in this article. The information offered is based upon his observations and strictly intended for educational purposes only; the use of which is the responsibility of the individual.
