We all know that earnings season is on the wane. But that doesn’t mean the cupboard is totally bare for options trading investors. In fact, next week is a veritable bonanza for those who fancy the specialty retailers, including the likes of Aeropostale (NYSE: ARO), J Crew (NYSE: JCG), Hot Topic (NASDAQ: HOTT), and American Eagle (NYSE: AEO), to name a few. But we’re heading in a completely different direction for our earnings trade.
We’re going to look at truck manufacturer Navistar International (NYSE: NAV), which reports after the bell on Tuesday, March 8. The company has a spotty record of beating earnings estimates, so that’s no help. On the other hand, the stock has performed very well after recent reports, gaining ground in both the one-day and five-day periods following the past three reports.
The shares are currently in a slump, well off the multi-year high reached just last month. That’s the bad news. The good news is that the stock is being supported at the 60 level, which has provided both support and resistance for the past three months. It’s also the site of peak put open interest in both the March and April series, which adds another potential layer of support.
Navistar stock
As for sentiment, we’re seeing enough pessimism to provide some fuel should it unwind. The short-interest ratio is just below 5, which could give way to a short squeeze. Seven of 19 analysts rate the stock a “hold” or “sell.” And the put/call ratio is coming off its highest peak since August. All in all, it’s not over-the-top bearish, but any unwinding could help the stock advance.
With manufacturing activity continuing to lead the recovery, we expect NAV to deliver a respectable earnings report. More importantly, we’re looking for an upbeat outlook. With a recent record of strong post-earnings performance, solid technical support in place, and enough pessimism to unwind, we like NAV’s prospects. Play the NAV April 60 Call for less than four bucks.
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