Name That Trade – Selling Implied Earnings Moves $HLF $COH

by CC July 29, 2013 4:04 pm • Commentary

We looked at doing some trades in HLF and COH who both reporting before the open tomorrow morning (HLF tonight, COH tomorrow morn). In case you missed it, here’s Dan’s preview of HLF. We ended up not doing any trading but the only things that looked interesting to us in both was perhaps selling the implied move on earnings as both stocks have priced in large moves but both sit in ranges where one could take advantage of that high vol to bet against an outside move. Let’s first look at COH.

One trade that looked interesting was selling the move in the weeklies.

Theoretical Trade – COH (57.75) Buy the Aug2nd weekly 60/57.5/55 put fly for 60c

  • Buy 1 Aug 60p for 3.50
  • Sell 2 Aug 57.5 puts at 2.00 (4 total)
  • Buy 1 Aug 55 put for 1.10

This trade basically risks 60c to make 1.90 if the stock settles in at 57.50. The risk of losing all of that 60c is very possible as this has been a name that moves alot on earnings, but the risk reward is nice because you are basically betting that the stock stays within its moving averages of 55 and 58.


Theoretical Trade – HLF (60.50) Sell the HLF Aug 50/45  70/75 condor at 1.30

  • Sell 1 Aug 70 call at 1.50
  • Buy 1 Aug 75 call for 80c
  • Sell 1 Aug 50 put at 1.00
  • Buy 1 Aug 45 put for 40c

This trade is nice in that you are essentially betting that HLF will not move outside of the 50/70 range by August expiration which is a quote a percentage move. The risk reward here on payouts is the opposite from the COH trade in that you are risking 3.70 to make 1.30, but your chances of success are very high. COH is more like a 50/50 proposition of losing it all or making a decent profit. the HLF structure is more like 80% of making money but a much worse loss if wrong.

So we didn’t do either of these trades but wanted to show you multiple ways of playing names to underperformed their expected moves. These are great structures and any one could be a loser on an earnings move but over time the math works in a way that doing these types of trades alot would be profitable.

We’ll post some ideas like these on upcoming earnings