There are a number of earnings announcements scheduled for Thursday that look primed for possible trades, but one of the more interesting stocks I have been watching recently is Autodesk, Inc. (NASDAQ:ADSK), as shares look ready for a breakout on a technical basis.
The 52-week high is at $65.78, and the 50- and 100-day major moving averages are in solid uptrends. The 200-day moving average has leveled out after a steady rise that started in May, but it looks stable.
An earnings beat on both the top and bottom lines, along with raised guidance, could get shares north of $67. An earnings miss, or a wider-than-expected loss, and a cloudy outlook could send shares south of $60.
Wall Street is forecasting a loss of 13 cents a share on revenue of $512 million.
The company was profitable in three of the past four quarters and has topped estimates during this time period despite reporting a loss of 10 cents last quarter. The low estimate for the recently ended quarter is for a loss of 16 cents, while the high estimate is for a loss of 12 cents.
Despite what could be back-to-back quarterly losses for Autodesk stock, shares have powered higher since bottoming just below $50 in June. The fundamental story makes going long ahead of the news a risky proposition, however, despite the strong technical setup.
ADSK Stock Trade Idea
To offset some of the risk, a “straddle” option trade could be used to play the event, but shares will need to make a major move for the trade to make money. The ADSK Sept $67.50 calls (ADSK160916C00067500, $0.82) and the Sept $60 puts (ADSK160916P00060000, $1.11) are pricing in a move of up to 5% in the stock.
Here is how the trade would make money. The cost to buy both aforementioned options would be $1.93, which would put the breakeven points at $69.43 and $58.07, technically, by mid-September. A 100% return would be achieved if shares clear $71 or fall below $56 by mid-September.
The options have over three weeks before they expire, which is why this trade is a tempting one to take. However, if shares stay between $69.25 and $58.25, potential losses could be realized as premiums start to erode.
The risk will likely keep me on the sidelines ahead of the announcement, but there could be a trade in ADSK stock afterwards once the dust settles.
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