American Express Company (AXP) is a global consumer credit card and merchant services company. The company’s stock is trading around $72.10 in today’s session, falling over 5.75% after the company released earnings after the bell yesterday. The stock is lower by more than $4.40 and has traded as low as $71.40 this morning as the firm missed analyst estimates on both EPS and revenues. The firm reported earnings of $1.24/share against estimates of $1.30/share and revenues of $8.2 billion vs. estimates of $8.38 billion. After such dismal numbers short sellers in AXP are celebrating this morning. Our traders caught this move to the downside by establishing a short position ahead of earnings in AXP here’s how they did it.
AXP had a very disappointing track record on earnings day over the past 12 quarters so our expectations were for the stock to be under pressure after this release. In the past 12 releases the stock had sold off 8 times from earnings day to options expiration with an average move of 3.26%. Ahead of the release market makers were implying a move of around $2.30 from the stocks pre-earnings price of $76.75 through the end of the week. Technically AXP was looking rather weak on a chart as well. The stock was trading inside of the Ichimoku Cloud but had failed to break old upside resistance into the report. With a bearish historical track record and a neutral chart our trader wanted to get short AXP into earnings.
Using the implied move of $2.30 a downside target for Friday’s close of $74.45 was calculated and an options spreads was selected.
Our trader bought the AXP Oct 23rd Weekly 75.5-74.5 Put Spreads for $0.28
Risk: $28 per 1 lot
Reward: $72 per 1 lot
On the open this morning our trader was able to exit these spreads for $0.96 more than tripling his money overnight. This is a perfect example of how a thoughtful analysis ahead of earnings can lead to huge winners.