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3 Tasty Pre-Earnings Options Strategies

A trio of call spreads on the casual-dining sector

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Cheesecake Factory (CAKE)If you already have an eye on the restaurant group, then you are aware of how full your plate will be this week. From spicy wings to paninis to cheesecake, casual dining companies already have their reservations for the earnings confessional, and Wall Street will be paying close attention to the results.  An unseasonably warm start to 2012 should have drawn more diners out of their homes, but spending may have been impacted by rising gas prices. Finally, with growth slowing overseas (especially in China), many restaurateurs could see their bottom lines impacted due to weakness overseas.

Buffalo Wild Wings (NASDAQ:BWLD)

Fresh off of March Madness – Go Big Blue! – sports bar and purveyor of spicy wings Buffalo Wild Wings will step into the earnings limelight after the close of trading this afternoon. Wall Street is expecting a first-quarter profit of 95 cents, up 17% from a year ago, while revenue is seen rising 37% to $249.8 million.  High food costs, including unusually high chicken prices, may cut into BWLD’s quarterly profits, but this hasn’t deterred investor expectations, with the whisper number arriving at $1.00 per share.

But these whispers are not reflected in BWLD’s sentiment backdrop. For instance, the stock has attracted only five “buy” ratings, compared to nine “holds,” and two “sells.” Additionally, more than two million BWLD shares have been sold short, accounting for a hefty 11% of the stock’s total float. Even options traders have jumped on the bearish bandwagon, with BWLD’s front-month put/call open interest ratio of 2.25 revealing that puts easily outnumber calls in the May series of options.

Technically, BWLD gapped sharply higher following its fourth-quarter earnings report in early February, but the shares failed to capitalize on those gains. Still, the shares have held on to their post-earnings gap, and are currently consolidating into support near $80. This region could provide a springboard for BWLD following tonight’s quarterly report.

Traders interested in getting in ahead of the event might want to consider a BWLD May 80/85 bull call spread (buying the 85 call and selling the 85 call for a net debit). This trade was offered at $2.70, or $270 per pair of contracts, at the close on Monday. Breakeven lies at $82.70, while a maximum profit of $2.30, or $230 per pair of contracts, would be realized if BWLD closes at or above $85 when May options expire.

Continue reading for two more earnings-related options trading ideas … 

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