American Express (AXP) will report their Q3 results today after the close. The options market is implying about a 3.5% one day move tomorrow, which is slightly rich to its 3% average one-day post move earnings move over the last four quarters, but below the 10 year average of about 3.8%. Shares of AXP are up 5% on the year, and down about 6.5% from its all-time highs made in September. The stock has found support this week at the intersection of the uptrend from the Feb 2018 lows and the August breakout to new highs:
Wall Street analysts remain fairly mixed on AXP with 15 Buy ratings, 16 holds and 2 Sells, despite fairly reasonable valuation, especially relative to its expected growth, trading 13x expected 2019 eps growth of 10% on 7% expected sales growth. All that said back in mid-July on their Q2 call the company failed to raise eps guidance which disappointed investors as it appears the company is prepared to spend more on marketing, despite sales growth that was slightly greater than expected. I would add that despite the stock’s run in August and September, the stock is just 1% above the levels of where it was prior to its Q2 print.
If the company were to miss and/or guide lower the stock would be on its way back to $100. If I were inclined to play for that, a move of about 4% slightly above the implied move I might consider the following defined risk trade idea:
Bearish Trade Idea: AXP ($104) Buy Oct 104 / 100 Put Spread for $1
-Buy to open 1 Oct 104 put for 1.60
-Sell to open 1 Oct 100 put at 60 cents
Break-even on Oct expiration:
Profits of up to 3 between 103 and 100 with max gain of 3 below 100
Losses of up to 1 between 103 and 104 with max loss of 1 above 104
Rationale: this trade risks about 1% of the stock price for one day to possibly make up to 3% if the stock is down 4% on tomorrow’s close. This trade idea could be used as hedge into a potentially volatile event for long holders, but this is not the sort of strategy that long holders would want to do too frequently as it could be a big drag on returns.
I will offer our normal disclaimer for long premium trade ideas into events like earnings, it takes a lot of things to get right to just break-even, first and foremost direction, then, of course, the magnitude of the stock’s move and time is always ticking. For a one-day earnings trade, if you get the direction wrong, depending on how near the money the trade is, it is at the very least a loser, and very likely a total loss.
OR If I were inclined to play for a move back to the prior highs near $112, I might consider lengthening the time horizon and look to November, possibly catching the Black Friday / Cyber Monday holiday sentiment and use the Nov 30th weekly expiration:
Bullish Trade Idea: AXP ($104) Buy Nov 30th weekly 105 / 112 / 119 Call Butterfly for $1.40
-Buy to open 1 Nov 30th weekly 105 call for 2.70
-Sell to open 2 Nov 30th weekly 112 call at 75 cents or 1.50 total
Buy to open 1 Nov 30th weekly 119 call for 20 cents
Break-even on Nov 30th expiration:
Profits of up to 5.60 between 106.40 and 117.60 with the max gain of 5.60 at 112
Losses of up to 1.40 between 105 & 106.40 and between 117.60 and 119 with the max loss of 1.40 below 105 and above 119
Rationale: this trade risks 1.4% of the stock price, to target a move back to the prior highs from Sept over the next 6 weeks.