New Earnings Trade 3-17

• stevenplace
• March 17th, 2010

FDX

BUY +5 CALENDAR FDX 100 APR 10/MAR 10 90 CALL @1.32 LMT BID

BUY +5 CALENDAR FDX 100 APR 10/MAR 10 85 PUT @.99 LMT BID

This is a tricky earnings trade. We are making the bet that the premiums are too high compared with that the news is going to be.

Current front month premiums are expecting a 5 point move either way. Last earnings round we had a 5 point move, so I think there’s a little hindsight bias going on.

We have very clear support and resistance levels. I believe that the 52 week highs will hold, and the 50 day moving average will hold as well.

We want to see FDX close between 85 and 90 ideally, and our breakevens are 93 and 82.50. This trade is limited risk, limited reward.

We will lose a little bit on the vol crush, but its not as much as you think. Including the volatility losses on the contracts we own, we’re shooting for a 40% return on risk.

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