This week kicks off earnings season with Alcoa Inc. (NYSE: AA) reporting on Thursday. It’s largely a ceremonial distinction, though, since earnings report numbers don’t start seriously rolling in for another couple of weeks.
For the record, just eight S&P 500 companies report this week, with most confessing before Alcoa does. But the market isn’t riveted on these reports for signs of how the season will turn out given that September’s jobs report is looming on Friday.
If jobs don’t show improvement, the market will be in a sour mood when it reacts to earnings, which puts even more pressure on companies to deliver.
5 Option Trades to Kick Off Earnings Season
But we’re here to pick earnings reports that have some promise. And one that catches our eye is Marriott International, Inc. (NYSE: MAR), which reports after the close on Wednesday. Analysts expect 22 cents per share, one penny lower than the whisper number. The hotelier has a solid record of beating these estimates, having missed just once in the past six years.
There’s no doubt that the hospitality business has been hammered by the recession. But MAR has shown improvement on the bottom line as the economy struggles to right itself.
The most attractive factor for MAR, though, is low expectations. The earnings estimate is lower than the actual numbers from the past three quarters.
Options players have heaped on the put volume, pushing the put/call ratio to near an annual high. Short interest is also high, and just 10 of 19 covering analysts rate the stock a “buy.” So the shares could benefit from a short squeeze or analyst upgrades.
On the chart, the stock has been treading water around the $36 level for nearly a month. The 20-day moving average is sitting underneath to lend support, while overhead resistance is light. What’s more, heavy call open interest sits below the current share price, taking away potential option-related resistance.
We don’t expect MAR to break out to dizzying heights. But a combination of technical support, a record of beating earnings forecasts, and low expectations among analysts, options players and the shorts, sets the stock up for a nice gain should the company beat the current analyst estimate.
To play it a little safer, we recommend buying some intrinsic value and a little more time with the MAR Nov 35 Calls.
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