Top Equity News was on the wrong side of the Advance Auto Parts Inc. (AAP) this week. The correction has changed the nature of post-earnings performance. Even companies that beat are struggling to make ground.
This week we will try to find a company that is likely to beat, but also subject to big moves so we can try to play both sides with an options straddle.
Collective Brands, Inc. (PSS) is expectedto announce first quarter earnings Tuesday, May 22, 2012, after the market closes, with a pre-recorded message from management will be available via phone and at the company’s website at 4:30 pm EST the same day. It can’t be too good if Memorex and management doesn’t want to take questions. What is that? TEN has never heard of anything like that before.
PSS is expected to earn $0.44 for its 1st quarter. Top Equity News expects the Payless ShoeSource stores operator to report earnings that will beat Wall Street’s expectations. TEN’s estimate is 47 cents – a 3 cent upside surprise.
Collective Brands tends to beat earnings big, but the stock tends to move all around. Eight of their last 16 earnings announcements have seen the stock move at least 11.8% in the days surrounding the profit news. On three occasions, shares have soared of dipped 28% or more.
The stock can be volatile, and that’s what we look for this time around.
In the last 30 days, 28 apparel retail companies have released their quarterly results, 20 of them had their share price trimmed afterwards. So the odds favor PSS dropping.
Let’s take a look at the options.
Collective Brands closed trading on Thursday at $21.09. For the purposes of our straddle, Top Equity will work with the June 21 call and put options. The calls last traded at 50 cents, and the puts at 28 cents.
For the trade to breakeven, the stock will have to about $1 to the upside or $1.10ish to the downside. Either move is roughly 5%, which is well below the average move of 13.91% in either direction.
Trading Earnings: Know Your Collective Brands, Inc. (PSS) Options is an article from: 
