Sears Holdings Corporation (SHLD) is a retailer with nearly 2,000 stores in the U.S. The company’s stock is currently trading around $34.42 in a 52 week range of $24.10-$49.34. The stock has been massively underperforming the market this year with shares falling by nearly 30% year to date. The company is set to report their most recent quarterly earnings tomorrow morning before the bell.
The stock has been relatively weak on earnings day over the past 8 quarters with shares moving lower on earnings day 6 times. On average the stock moves on earnings around 8.3%. Currently the options market is implying a move of around $3.20 by Friday’s close. This 9.3% implied move is a bit higher than the historical average but traders should keep in mind that there is 2 full trading days’ worth of time premium in this straddle. With a neutral chart setup and a bearish historical movement record SHLD seems to be setting up well for a short on earnings.
Using the implied move I can calculate a downside target of around $31.20
Trade: I bought the SHLD Dec 5th Weekly 32-31 Put Spreads for $0.25
Risk: $25 per 1 lot
Reward: $75 per 1 lot
Breakeven: $31.75
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