Trade of the Day: H&R Block (HRB)

Trade the news on HRB

   

Recommendation: Buy to open the HRB Jan 17.50 Puts

H&R Block, Inc. (NYSE:HRB) will be releasing their earnings report on Thursday morning, which is also the ex-date for their most recent dividend. This is a little unusual, but it could work in our favor if investors holding out for the dividend decide to sell on the ex-date based on a poor financial release. The options already have the dividend priced in so we aren’t worried about that affecting our trade otherwise.

HRB is a company in flux – they have struggled a lot over the last few years with a failed mortgage company, proxy battles and falling revenues. In October the firm added insult to injury by announcing they will probably end/sell the operations of their bank. That is a problem because it has been a strategic source of profits and revenue through deposits and the company’s “Emerald Card,” however the firm cannot reasonably comply with new financial regulations and will probably have to sell those products to a partner.

Initially, HRB sold off on the bank news but has been following the market back up before hitting long term resistance at $18 per share. This is probably due partially to buyout rumors propagated by shareholders who think an acquisition will be more likely if the banking operations are sold. That may or may not happen in the short term, but it is not likely to change the reaction to the earnings report. Currently investors are expecting losses of $.40 per share this quarter, so the reaction to the report is likely to focus on management’s outlook for the future.

HRB can be very volatile right after its earnings report so plan to close the trade very quickly Thursday morning. The stock has a liquid chainsheet but the bid-ask spread can get a little wide, so make sure to use a limit order just under the ask price if the spread is wider than $.05 per share.

Recommendation: Buy to open the HRB Jan 17.50 Puts

John Jagerson and S. Wade Hansen are co-founders of LearningMarkets.com, as well as the co-editors of SlingShot Trader, a trading service designed to help you make options profits by trading the news.


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