Fossil Group (NasDaq: FOSL, 103.82) shares are off by nearly 14% in 2014. The Richardson, TX-based clothing and accessory manufacturer is scheduled to report earnings after the close today.
FOSL stock has recently been trading in the lower part of its 52-week range of $91.84-$129.79. Consensus analyst estimates project EPS of $1.82 on revenue of $879.05 million, compared with EPS of $1.36 on $810.4 million in revenues for the same quarter last year.
The FOSL Nov Weekly 103 Straddle of $7.50-$8.40 implies a move of roughly $8 or 7.5% before this Friday’s expiration. This is slightly higher than the average post-earnings announcement move of 7% over the past 8 quarters. FOSL stock has sold off on earnings three of the past four quarters, and only rallied four of the past eight quarters.
When putting on earnings trades, traders should always turn to weekly options, if possible, to best isolate the catalyst movement. At the same time, if trading a directional strategy, it is very important to “spread” the trade using a vertical.
By selling a further-out-of-the-money call or put, one reduces his exposure to a post-earnings “vol crush,” where the volatility component of the option’s extrinsic value rapidly declines due to the removal of the uncertainty of earnings data.
My Trade: Buy the FOSL Nov 101-96 Put Spread for $1.50
