I am playing earnings for Constellation (STZ). Earnings are before the open Wednesday. STZ has moved up on earnings 5 out of last 7 times. The times that it has moved down, it didn’t move down much (-1.0%).
The chart is about as bullish as they come.
The sector is strong as well. You are seeing the same bullish trends in names such as: Molson Coors (TAP), Anheuser Busch (BUD), Diageo (DEO) to name a few.
So, instead of playing a directional play here, a calendar makes much better sense. This approach can be profitable if we sit here, or go up at a measured pace targeting our short strike.
Looking at how STZ moves even after negative outcome earnings we see the strong bullish tendency continue. So this leaves us the opportunity to perhaps allow the front leg of the calendar expire worthless and then sell some higher strike in the May expiration.
This was the signal:
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4-4-16: Based on our methodology a signal has been generated: Sell (opening) the STZ April 160 call For a debit of $1.05 or less. This signal is not GTC and is valid with STZ trading $150.50 – $152.50.
With our modeling of implied volatility after the earnings release, we see potential profits of about $1.00 if we signal an exit tomorrow and then much greater (~1.50 – $1.60) if we can take advantage of decay and hold for a period of time.
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