Shares of Box Inc (NYSE:BOX) are finally finding their footing after a nasty drop post-earnings. BOX stock has recovered nicely off the recent lows and now it appears poised for a potential upside breakout. Massive call buyers are certainly positioning in a big way for more upside. Time to follow the flow in BOX stock.
The reason for the recent drubbing was a revenue shortfall and lowered guidance in the Q4 earnings report on Feb. 27. The company fell short of revenue, coming in at 4163.7 million versus estimates of $164.2. More importantly, BOX guided lower for full-year 2020 with the company now seeing revenues of just $700-$704 million compared to analyst consensus of $714 to $750 million. BOX stock was taken out to the woodshed following the news, dropping over 20%.
InvestorPlace contributor Chris Tyler does a deep dive analysis into some of the fundamental and technical reasons he now feels BOX stock is poised for a breakout, post-earnings. I plead ignorance on the fundamental side with earnings still negative and now lowered revenue guidance. Certainly no argument from me, however, on the technical side.
Shares are at a major inflection point at the $20.30 level. BOX stock has butted up against this resistance seven times since the earnings torpedo in late February. Each time the attempt was subsequently rejected. Yesterday, BOX once again pierced past $20.30 intra-day only to close lower at $20.26. The stock did get back above the 20-day moving average at 419.49, which should provide downside support. At some point, though, BOX will either break out convincingly or break down.
A rather large player in the option space is positioning in a big way for a breakout. Nearly 24,000 contracts of the May $21 calls traded on Monday versus only 355 open interest.
The huge call buying also drove implied volatility (IV) to extremes. The May $21 calls were priced at 35 cents on April 15 with BOX at $19.72 (roughly 34 IV).
On Monday, following the massive call buying, these same options with BOX at exactly the same price were priced at 57 cents (over 50 IV!). So even with BOX stock at the same price and a week of time premium passing, these calls were over 20 cents more expensive due to the enormous lift in IV caused by the huge call purchases.
To me, this sets up ideally for a trade-buying stock and selling these extremely richly priced calls. This allows one to lean bullishly along with that big call buyer, while simultaneously capturing some juicy option premium to hedge the downside and reduce the initial cost.
Box Stock Trade Idea
Buy BOX stock and sell the BOX May $21 calls for $19.65 net debit.
Ideally, BOX stock closes above $21 at May 17 expiration to realize the maximum gain of 6.87%. If not, one can look to sell some additional June call options against the stock to bring in additional option premium.
Earnings are due May 29.
Tim Biggam may hold some of the aforementioned securities in one or more of his newsletters. Anyone interested in finding out more about Tim and his strategies can go to https://marketfy.com/item/options-and-volatility.