Tuesday Earnings Spotlight: Fossil (FOSL)

Fossil Group (NasDaq: FOSL, 103.82) shares are off by nearly 14% in 2014. The Richardson, TX-based clothing and accessory manufacturer is scheduled to report earnings after the close today.

FOSL stock has recently been trading in the lower part of it’s 52-week range of $91.84-$129.79. Consensus analyst estimates project EPS of $1.82 on revenue of $879.05 million, compared with EPS of $1.36 on $810.4 million in revenues for the same quarter last year.

The FOSL Nov Weekly 103 Straddle is $7.50-$8.40, imply a move of roughly $8 or 7.5% before this Friday’s expiration. This slightly higher than the average post-earnings announcement move of 7% over the past 8 quarters. FOSL stock has sold off on earnings 3 of the past 4 quarters, and only rallied 4 of the past 8 quarters.

When putting on earnings trades, traders should always turn to weekly options if possible to best isolate the catalyst movement. At the same time, if trading a directional strategy, it is very important to ‘spread’ the trade using a vertical. By selling a further-out-of-the-money call or put, one reduces their exposure to a post-earnings ‘vol crush,’ where the volatility component of the option’s extrinsic value rapidly declines due to the removal of the uncertainty of earnings data.

My Trade: Buy the FOSL Nov 101-96 Put Spread for $1.50
Risk: $150 per 1 Lot
Reward: up to $350 Per 1 Lot
Break-even stock price at expiration: $99.50

Greeks of this Trade
Delta: Short
Gamma: Long
Theta: Short
Vega: Long