Earnings season is drawing to a close, but there are still a few hot stocks to watch this week. Today we’ll look at three of the best to build earnings trades around.
In scanning for the ideal candidates, I had two things in mind. First, options liquidity. Regardless of how attractive a company, if it doesn’t offer options with sufficient open interest and narrow bid-ask spreads, then it’s hard to execute a trade at a reasonable price.
Second, volatility. Entering options trades around earnings on boring stocks that don’t budge after their quarterly reports is, well, boring. These sleepy stocks (think utilities, real estate investment trusts and consumer staples), don’t see much movement in options premiums around the event. However, today’s trio has a history of moving big after earnings announcements.
Two of the three have compelling enough charts to tempt a bullish-leaning play into the event.
Let’s take a closer look at the top stock trades for the week.
Top Stock Trades for the Week: Roku (ROKU)
Roku (NASDAQ:ROKU) has a reputation for rip-roaring rallies and puke-inducing plunges. Curiously, however, it turned sleepy over the past few months, settling into an uncharacteristically tight range. I suspect earnings will be the catalyst needed to disrupt the equilibrium and breathe new volatility into the stock.
The neutral price action, coupled with ROKU sitting beneath its 50-day and 20-day deters me from making a directional bet. There simply isn’t enough momentum one way or the other heading into the binary event. Thus, we’re left with possible volatility based trades.
If you’re looking to bet on Roku moving more than expected, then a bi-directional trade like an inverted condor will do the trick. Buy the March $140/$150 bull call spread and March $115/$110 for around $5.80. Consider it a bet that ROKU stock pushes toward $150 or $110 post-earnings.
Alternatively, if you believe the stock will move less than expected, then an iron condor is worth a shot. Sell the March $100/$90 bull put spread, and the $160/$170 bear call spread for a net credit around $1.90. The position will profit if ROKU stays between $100 and $160.
Yeti (NYSE:YETI) heads into this week’s earnings announcement with the wind at its back. Last Tuesday, YETI stock reached a record high of $38.61. Enough time has passed since its late-2018 IPO for a consistent uptrend to emerge. The weekly time frame boasts an uninterrupted series of higher swing lows, reflecting increasing demand on every dip.
The 20-day, 50-day and 200-day moving averages are all rising to confirm buyers’ dominance across all time frames. A three-day pullback carried Yeti shares into this week, providing a lower-risk entry for those willing to lean bullish into Thursday morning’s festivities.
If you’re a willing buyer of YETI at lower prices, then sell the March $32.50 put for around $1.50.
Lyft (NASDAQ:LYFT) shares look healthier than ever right now. Sure, it took a 50+% decline before a bottom was found, but let’s not complain. Sustained buying pressure over the past four months has allowed LYFT stock to complete an ascending triangle formation. This morning’s 4% gain clinches the breakout and is even pushing LYFT above its recently listed 200-day moving average.
Shareholders also have high hopes in light of Uber’s (NASDAQ:UBER) monster run last week following a better-than-expected report.
While there’s always a chance LYFT disappoints, its recent price action has me warming up to a bullish-leaning trade into earnings.
Sell the March $45/$40 bull put spread for around 75 cents.
As of this writing, Tyler Craig held bullish positions in YETI. For a free trial to the best trading community on the planet and Tyler’s current home, click here!