Options Strategies for This Week’s Big Earnings
| Earnings season unofficially kicks off this week with Alcoa Inc. (NYSE: AA) reporting on Thursday. In addition to Alcoa, we will see reports from Yum! Brands, Inc. (NYSE: YUM), Costco Wholesale Corporation (NASDAQ: COST), Monsanto Company (NYSE: MON) and Micron Technology, Inc. (NASDAQ: MU).
We have some strategies based on options trading information picked out on these five stocks based upon general price trends and recent moves. Since some of these reports will be coming later in the week, today’s strategies are general rather than specific. Traders will want to select their strike prices accordingly as share prices adjust and time decay is factored in. |
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#1 – YUM! Brands (YUM)
| Yum! Brands, Inc. (NYSE: YUM) reports earnings Tuesday after the close. Thomson Reuters estimates call for EPS of 72 cents and $2.87 billion in revenues. Shares are at $46.36 and the 52-week range is $32.49 to $46.91. The stock ran up over the past quarter based in part on a higher dividend, but it was somewhat surprising considering that the past quarter’s earnings announcement was given only a so-so grade. Traders can sell slightly out-of-the-money November calls for income to capture more time value premium or buy October puts to avoid paying too much for time. | FREE Chart of the Day! |
#2 – Costco Wholesale Corp. (COST)
| Costco Wholesale Corporation (NASDAQ: COST) reports Wednesday morning, and Thomson Reuters estimates call for EPS of 95 cents and $24.23 billion in revenues. Currently at $65, the stock’s 52-week range is $53.41 to $65.22. Shares were just under $54 in mid-July, so investors will likely have to see blowout earnings and a substantial guidance increase for COST to hold its share price, let alone go higher. Analysts have an average consensus of about $64.50, so either valuation downgrades will be seen, or those analysts will have to chase the stock by raising targets for an above-average valuation. Speculating with October put options would be my first choice, while writing calls for a hedged long position would be my second. | FREE Chart of the Day! |
#3 – Monsanto Company (MON)
| Monsanto Company (NYSE: MON) is set to report earnings on Wednesday before the market open. Thomson Reuters estimates for the troubled agriculture and seed company call for a 6-cent loss and $1.82 billion in revenues. Shares are currently below $48, and the stock’s 52-week range is $44.61 to $87.06. There is a chance MON will hit a new 52-week low after earnings if the company cannot signal that its woes are coming close to an end or that the current price already reflects the risks. The gutsy counter-trend play is the MON Oct 50 Call, while the speculative put of choice is the MON Oct 45 Put. | FREE Chart of the Day! |
#4 – Alcoa, Inc. (AA)
| Alcoa, Inc. (NYSE: AA), the first Dow component to report earnings, is scheduled for Thursday after the close. Thomson Reuters estimates call for EPS of 6 cents and $4.95 billion in revenues. Shares got pounded after the last earnings report, but the stock recovered and posted gains of about 20% over the past three months. AA seems to have a better chance of making a large move either up or down after the report than it does of staying flat, so an options straddle may be the way to go. If shares stay around the $12 mark, then an October $12 straddle seems to be the best play for a volatility bet. That straddle cost 75 cents as of Monday morning, but the volatility trade will be harder to capture if the stock’s price moves much before earnings. | FREE Chart of the Day! |
#5 – Micron Technology (MU)
| Micron Technology, Inc. (NASDAQ: MU) is scheduled to report Thursday after the close, and this DRAM giant will be the first of the real technology companies to report earnings this season. Thomson Reuters estimates call for EPS of 40 cents and $2.67 billion in revenues. Currently trading at $7.05, the stock’s 52-week trading range is $6.12 to $11.40. Micron has not recaptured anywhere close to all of its losses, and Q3 was a down quarter for the stock. Shares dropped more than 3% on Monday, and the October $7 strike was the most active, with open interest over 130,000 for the puts and calls.
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