If you are looking for a high-volatility play to round out this earnings season, look no further than Box Inc. (NASDAQ:BOX). According to options pricing, BOX stock is expected to move more than 12% following next Tuesday’s quarterly report.
Such a move could translate into considerable returns … if you’re on the right side of the trade.
While Detective David Mills is asking “What’s in the box?”, savvy tech investors already know that the company specializes in the red-hot cloud business services market. Naturally, this puts Box in direct competition with tech giants like Microsoft (NASDAQ:MSFT), Amazon (NASDAQ:AMZN) and even Alibaba (NYSE:BABA).
Unlike these cloud behemoths, however, Box’s upstart nature has allowed it to be more nimble in the cloud marketplace, allowing it to carve out its own niche. As a result, Box is expected to see sales grow an average of 58% this year and a whopping 133% next year.
Looking at next week’s earnings, analysts are expecting Box losses to narrow from 11 cents per share in the year-ago quarter to just 6 cents per share this past quarter. Revenue is expected to rise 19.2% to $146.54 million. EarningsWhispers.com puts the quarterly loss at just 5 cents per share.
Click to Enlarge And there’s more bullish sentiment where that came from. According to data from Thomson/First Call, 10 of the 12 analysts following BOX stock rate the shares a buy or better.
The consensus price target currently rests at $28.75.
Options traders are also quite bullish. Currently, the September put/call open interest ratio rests at a lowly reading of 0.39, with calls on the verge of tripling puts in the front-month series. Peak September call OI rests at the out-of-the-money $32 strike, underscoring the bullish attitude of BOX stock options traders.
The problem for BOX stock is that the shares have been locked in a downward trending channel since May.
Right now, the upper rail of that downtrending channel is reinforced with BOX stock’s 50-day moving average, while the lower rail is bolstered by its 200-day trendline. With options traders pricing in a 12.6% move following earnings, BOX stock could easily break through either of these rails.
2 Trades for BOX Stock
Call Spread: With the rest of the cloud sector performing much better than expected, it stands to reason that Box should also benefit from the continued shift into cloud business services. Traders looking to bet on a strong report from Box might want to consider a Sept $26/$27 bull call spread.
At last check, this spread was offered at 35 cents, or $35 per pair of contracts. Breakeven lies at $27.35, while a maximum profit of 65 cents, or $65 per pair of contracts, is possible if BOX stock closes at or above $28 when September options expire.
Puts Spread: BOX stock is locked in a downtrending channel for a reason. Also, earnings season has been fickle so far, with stocks plunging on the slightest infraction. Traders worried that BOX stock is in for a continuation of its current decline should consider a Sept $24/$25 bear put spread.
At last check, this spread was offered at 35 cents, or $35 per pair of contracts. Breakeven lies at $24.65, while a maximum profit of 65 cents, or $65 per pair of contracts, is possible if BOX stock closes at or below $24 when September options expire.
As of this writing, Joseph Hargett did not hold a position in any of the aforementioned securities.
