5 Earnings Busting Money-Doubling Trades

by Traders Reserve | August 6, 2012 3:00 pm

The thrill of the earnings trade cannot be denied.

While the rest of the market twists in the wind never knowing where the market will go next, traders sit poised to bounce on companies reporting earnings for fast and furious gains.

Using option contracts, you can maximize your opportunity for fast profits. During the first day of trading after news is released, these contracts can double in value or more.

When you hit that winning trade, the adrenaline rush is euphoric. The best part is that the rush never ends as the parade of companies reporting results is virtually nonstop each and every quarter.

This quarter we have seen a number of companies trade with fantastical price swings after an earnings report[1]. Stocks like Chipotle (NYSE:CMG[2]), and Zynga (NASDAQ:ZNGA[3]) have all moved sharply on earnings news. The option contracts in each jumped as well.

When I peruse the market for earnings trading opportunities, I’m looking for big scores. Call it elephant hunting and when the elephant arrives, there really is no better feeling.

Where will the elephants come from? Here are 5 possible earnings busting option trades that could double in value:

1) Fossil

Last week Coach (NYSE:COH[5]) reported results that disappointed the market[6]. Shares of the luxury accessory company plunged on the news. On Tuesday (August 7) after the bell consumer goods and watch maker Fossil (NASDAQ:FOSL[7]) reports results. The stage is set for a big earnings trade. Shares of Fossil traded for $139 per share as recently as last May before the stock was sold off heavily on weaker guidance.

With the plunge behind it, analysts still project profit growth of 16% this year to the next. Shares trade for only 13 times current year estimated earnings. Any sign of good news will have this stock rallying significantly.

2) Cree

The LED company Cree (NASDAQ:CREE[8])  reports earnings results on Tuesday (August 7) after the market closes. The entire semiconductor space has been hammered this year on signs of an economic slowdown across the globe. The reality is that these companies are doing better than expected.

With Cree the selling takes down the valuation to 19 times 2013 fiscal year estimated earnings. Analysts project profits to grow by 44% making the stock exceedingly cheap. Technology stocks that report solid results have been big winners during earnings season. I expect the same for Cree next week.

3) Sotheby’s

We shall see how recession proof the collectibles industry is when Sotheby’s (NYSE:BID[9]) reports results on Tuesday (August 7) after the market closes. Shares rallied on Friday by more than 5% thanks to the strong jobs report. Despite the gain the stock is still cheap as it hits the earnings report.

Analysts expect the company to grow profits by 20% from the current year to the next. At current prices shares trade for just 13 times current year estimated earnings. Expectations for the current quarter have been falling over the last 90 days even though the company matched expectations in its last report. The valuation metrics suggest good things for Earnings Players when this company reports.

4) Priceline

Investors often confuse a high price stock for being an expensive stock. Apple (NASDAQ:AAPL[10])  is a good example with shares trading around $600 yet the stock being inexpensive from a fundamental value perspective. The same can be said of travel company, Priceline (NASDAQ:PCLN[11]).

The negotiator may trade for almost $700, but that does not mean the stock is expensive[12]. This company is expected to grow profits by 24% from the current year to the next. At current prices shares trade for 17 times 2013 estimated earnings. An earnings beat release on Wednesday (August 8) keeps the momentum going for Priceline.

5) J.C. Penney

Discount department store J.C. Penney (NYSE:JCP[13]) is in the middle of a turn around. That coincides with the stock bottoming in value as investors have abandoned the company[14]. The naysayers may be surprised. JC Penney is working through its issues. This quarter may be the first sign of more good things to come.

If so, the stock could jump some 20% or more after the report. Call options here will easily double if that is the case. Analysts see J.C. Penny profits doubling from the current fiscal year ending January 31, 2013 to the next. That is huge growth. All that is needed for this one to really jump is a spark.

  1. number of companies trade with fantastical price swings after an earnings report: https://investorplace.com/2012/07/5-more-facebook-like-wild-price-swingsyndx-goog-bidu-lnkd-cosd/
  2. CMG: http://studio-5.financialcontent.com/investplace/quote?Symbol=CMG
  3. ZNGA: http://studio-5.financialcontent.com/investplace/quote?Symbol=ZNGA

  4. : http://www.barchart.com/quotes/stocks/FOSL
  5. COH: http://studio-5.financialcontent.com/investplace/quote?Symbol=COH
  6. reported results that disappointed the market: https://investorplace.com/2012/07/coachs-troubles-made-in-the-usa-coh/
  7. FOSL: http://studio-5.financialcontent.com/investplace/quote?Symbol=FOSL
  8. CREE: http://studio-5.financialcontent.com/investplace/quote?Symbol=CREE
  9. BID: http://studio-5.financialcontent.com/investplace/quote?Symbol=BID
  10. AAPL: http://studio-5.financialcontent.com/investplace/quote?Symbol=AAPL
  11. PCLN: http://studio-5.financialcontent.com/investplace/quote?Symbol=PCLN
  12. does not mean the stock is expensive: https://investorplace.com/2012/05/should-i-buy-priceline-3-pros-3-cons/
  13. JCP: http://studio-5.financialcontent.com/investplace/quote?Symbol=JCP
  14. stock bottoming in value as investors have abandoned the company: https://investorplace.com/2012/07/jcpenney-jcp-slippery-slope-shows-no-sign-of-slowing/

Source URL: https://investorplace.com/2012/08/5-earnings-busting-money-doubling-trades-aapl-pcln-jcp-bid-cree-cmg-znga/
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