Event: Whirlpool (WHR) reports Q2 results tomorrow morning before the open. The options market is implying about a 4.5% one day move. The average one day post earnings move has been about 5.3% over the last 4 qtrs.
Price Action / Technicals: Shares of WHR have been volatile in 2016 trading as low as $123.60 in January and as high as $193.60 in mid April. The stock is now up 25% on the year, and up 20% since June 28th when the company reaffirmed their 2016 outlook in the aftermath of the Brexit vote.
The stock has now come back to the downtrend linking its all time highs made in early 2015, to its 52 week highs in April:[caption id="attachment_65171" align="aligncenter" width="600"] WHR 5 year chart from Bloomberg[/caption]
A failure at the downtrend could put a re-tracement back to $160 very likely:[caption id="attachment_65172" align="aligncenter" width="600"] WHR since Jan 2015 from Bloomberg[/caption]
What to expect? 50% of WHR sales come from outside the U.S., so the U.S. dollar up year over year and sequentially might hurt forward guidance, despite the company’s affirmation late last month. Q3 Guidance could be at risk.
Estimates and Forecasts from Bloomberg:
-2Q adj. EPS est. $3.36 (range $3.24-$3.49)
-2Q rev. est. $5.13b (range $4.95b-$5.23b)
-2Q gross margin est. 19% (range 18.7%-19.2%)
-2016 adj EPS est. $14.68 (range $14.30-$15.67); co. forecast $14.00-$14.75 (June 28)
-2016 rev. est. $20.77b (range $20.08b-$21.05b)
So what’s the trade? Options trade by appointment in the stock, there is a total of 47,000 of open interest. The 7 largest strikes of open interest are all puts with the largest 1100 of the Aug 170 puts. Spreads are wide, liquidity low and vol high. For those looking to make directional bets into the print, calendars or butterflies could make sense.
Here are a couple ideas depending on one’s directional inclination:
WHR ($183.25) Buy the August 180/165/150 put butterfly for 2.70
- Buy 1 Aug 180 put for 4.60
- Sell 2 Aug 165 puts at 1.10 (2.20 total)
- Buy 1 Aug 150 put for .30
Rationale – Risking 2.70 to make up to 12.30 on August expiration. A profitability range of 152.70 to 177.30. This trade targets a move below the 50 day moving average and almost down to the 200 day moving average just above 160. For a stock that’s moved so wildly in 2016 implied vol is more than reasonable to play for an $18 move lower over the next few weeks (the options are pricing in a move of about $8 on the event itself).
WHR ($183.00) Buy the July22nd weekly/ September 190 call calendar for 2.50
- Sell 1 July22nd weekly 190 call at 1.50
- Buy 1 September 190 call for 4.00
Rationale – For moves to the upside it makes sense to sell the move on the weeklies at around 190 in order to own that level later in the year for any possible breakout. The 2016 highs dating back to April will likely find sellers on an earnings move higher. A breakout above that level is likely to be a process and ideally on a move higher the weeklies would expire worthless leaving yourself optionality to further spread the September calls. This defines risk to 2.50 in an oddly volatile stock. Risk to this trade are moves lower or a massive move higher through the 190 strike (before tomorrow’s expiration) where the premium paid could be at risk.