This morning, shares of Electronic Arts (EA) cleared the previous 52-week and all-time high of $75.76 that was set in early August.
Shares are up over 60% this year after coming into 2015 just north of $47. The Aug. 24 low reached $59.47, and the company is scheduled to release its latest earnings report after Thursday’s close.
The chart alone is suggesting that a huge move could be coming, as shares are breaking out into blue-sky territory.
The 50-day moving average recently broke below the upward-sloping 100-day moving average, but it is now leveling out. The 200-day moving average is also in an uptrend, and shares are holding steady into the earnings announcement.
Click to EnlargeWhen stocks are on the verge of a blue-sky breakout ahead of earnings, it usually means that there could be volatility associated with the report. Bullish traders are betting on a breakout on an earnings beat with raised guidance. Short sellers are playing a possible “double top” and the potential for an earnings miss that would likely send shares lower.
Expectations Ahead of EA Stock Earnings
As far as the numbers, the suit-and-ties expect EA to earn 45 cents a share on revenue of $1.1 billion. The company has topped estimates over the past four quarters by 12 cents, 14 cents, 30 cents and 20 cents, respectively. More importantly, revenues have also topped expectations in each quarter as well.
In late July, Wall Street snubbed the company’s fabulous results, as shares fell 75 cents following the announcement. The stock closed July at $71.55 before making a run to the 52-week peak three trading sessions later.
In early May, shares made a move from $59.16 to $60.93 following earnings and tested $63.46 three sessions later. In late January, shares surged from $48.41 to $54.61 after earnings and were pushing $57 by the first week of February.
In October of 2014, EA shares jumped from $37.48 to $38.91 following the beat-and-raise quarter. I think the October magic could continue this year, which is why I’m looking at going “long” with call options ahead of Thursday’s news.
The EA November 80 calls (EA151120C00080000) could be used by bullish traders who are expecting a run past $80. Shares would need to be at $81.80, technically, by late November, for the trade to break even. If shares push $83.60, these options will double from current levels.
There are weekly options available to trade on EA as well, but the aforementioned regular November monthly options would give the trade more time to play out.
With that said, the EA Oct 30 $70 weekly puts (EA151030P00070000) could be used to create a strangle option trade, but they are super expensive. These options expire this Friday and could be used as protection in case shares stumble and fall below $70.
The premium for both the EA Nov $80 monthly calls and the EA October 70 weekly puts would be $2.50. The breakeven points would be $82.50 by mid-November or $67.50 by this Friday. A double would occur if shares push $65 by Friday’s close or $85 by Nov. 20.
I’m more bullish on the stock than bearish, as I think the company is on track for another fantastic quarter. If I had to place a bet, I would likely go for the calls without the put protection or a strangle trade with a 2:1 call/put ratio.
However, I am still on the sidelines for now.
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