Progressive Options Trade Beats Earnings

by Chris Johnson and Jon Lewis | April 11, 2011 3:36 pm

While this is the official starting week for the Q1 earnings season, the reality is that not too many companies are on the schedule. Oh sure, options trading[1] investors will see Alcoa (NYSE: AA[2]) leading off the parade, followed by Google (NASDAQ: GOOG[3]), JP Morgan Chase (NYSE: JPM[4]), and Bank of America (NYSE: BAC[5]). But that hardly constitutes a “busy” earnings week.

So we’ll have to look for secondary names that may not have the sizzle, but still can produce for traders. One name we like is Progressive Corp. (NYSE: PGR[6]), the property casualty insurer that features perky Flo in its advertising. PGR reports before the bell on Thursday, with analysts expecting a modest 43 cents per share, just two pennies more than a year ago.

The company has a respectable recent earnings history, having met or beaten the past eight estimates. Performance following recent reports has been mixed, with moves generally small in scope. The good news is that earnings don’t usually interrupt the ongoing trend. Given that the stock is in the midst of a rally covering more than three weeks, we look for the stock to continue higher after reporting.

Speaking of the rally, PGR has added more than 7% since rebounding off its 50-day moving average last month. Currently the stock is trading higher along its rising 10-day moving average. Next up is its November high just north of the 22 level.

Progressive (NYSE: PGR)

Last month, PGR reported solid results for February, with income rising 16% from a year earlier. Perhaps similar results this week will move some of the 12 analysts that still rate PGR a “hold” (compared to just 10 “buys”) to the bullish camp. At the very least, we expect earnings to come in solid and for the stock to continue its rally. Buy the PGR May 20 Call for under $2.00.

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  2. AA:
  3. GOOG:
  4. JPM:
  5. BAC:
  6. PGR:

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