Tuesday, July 24, 2012

PNRA Earnings trade

With PNRA reporting tonight, and CMG's disaster still lingering in recent memory, a downside play for earnings seems to be in order. Looking at the daily Ichimoku chart PNRA first failed in an upside breakout attempt of the cloud, then broke to the downside below the cloud and has now rallied from its lows. For a detailed look at Ichimoku analysis please look to http://www.youtube.com/watch?v=HN7vo0FeeaQ  Couzin Vinny gives a great introduction. Essentially the cloud bottom now becomes resistance. The Chikou, the cyan line has also broken to the downside (see blue elipse on chart).

A break below 135 opens up the real possibility of a gap fill going back to November at 118.17.

 With that in mind let’s try a Aug 27 135/120/105 put butterfly is priced right now at 1.95 (midpoint of quotes) 4.65/1.60/.50. So the trade is to buy 1 each of the Aug 135 put and Aug 105 put and sell 2 Jul 120 puts. The stock is rallying so it should be executable at 2.00. Maximum risk is the amount paid for the fly $200 per fly. Losses occur above 137 and below 107 at expiration. Maximum gain is at the short strike of 115 and is $1300 per spread. So risk reward is a nice 6.5 to 1.

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