Rite Aid Corporation (RAD) will step onto the earnings stage bright and early on Thursday morning. The company is currently waiting on regulatory approval for its merger with Walgreens Boots Alliance Inc (WBA), but there are still potential trading opportunities for RAD stock even in this low-volatility environment.
By the numbers, Wall Street is expecting Rite Aid earnings to plunge year-over-year to six cents per share from 12 cents per share a year ago. Revenue, however, is seen rising 22.6% to $8.4 billion.
Rite Aid has a history of besting the consensus estimate, however. As such, EarnignsWhisper.com reports that the whisper number for Rite Aid’s fourth-quarter report stands at seven cents per share, a penny better than the consensus.
Pulling back for a broader sentiment look, we find a solid bullish backdrop in the brokerage community. According to Thomson/First Call, RAD stock has attracted six buy ratings, five holds and no sell ratings. The 12-month consensus price target of $9 per share represents a meager 9.9% premium to Friday’s close, but this is to be expected, given that the WBA buyout values the stock at $9 per share.
Click to Enlarge RAD stock is thick with near-the-money call open interest and out-of-the-money put OI. Calls are clearly more popular, as the April put/call open interest ratio for RAD stock rests at 0.60.
Turning to implieds, weekly April 8 series options are pricing in a potential post earnings move of about 2.9% for RAD stock. This places the upper bound at $8.43 while the lower bound lies at $7.95.
That said, unless things change on the merger front, don’t expect too much movement in either direct for RAD — save for the stock rising to $9 following a merger approval.
2 Trades for Rite Aid Stock
Call Spread: RAD stock is starting to drift away from $8 per share — a region it had been pinned to for the past month. One way to take advantage of this drift higher would be to enter an April $8/$9 bull call spread. At last check, this spread was offered at 21 cents, or $21 per pair of contracts. Breakeven lies at $8.21, while a maximum profit of 79 cents, or $79 per pair of contracts, is possible if RAD stock closes at or above $9 when April options expire.
Puts Sell: Since RAD is unlikely to hit $9 barring anything short of a merger approval, another way to use options to profit from the stock is to enter a put sell position. Traders looking explore this route with RAD stock might want to consider an April $7 put sell. At last check, this put was bid at two cents, or $2 per contract.
On the upside, you keep the premium received as long as RAD stock closes above $7 when April options expire at the end of next week. On the downside, should RAD trade below the sold strike ahead of expiration, you could be assigned 100 shares for each sold put at a cost of $7 per share.
As of this writing, Joseph Hargett did not hold a position in any of the aforementioned securities.
