Wednesday, May 20, 2015

NTAP July 35 Call Option - Earnings Today After the Close

Click on Chart to Enlarge

I bought a NTAP July 35 call option this morning.  Earnings is reported today after the market closes, so this is a known high risk trade.  The rationale is very clear though.  If you check weekly and daily stochastics you can see that both have bullish divergences at yesterdays low.  And yesterday formed a bullish piercing pattern candlestick reversal.  There was a small gap up today, and the option was bought for 1.60, so there is only a modest rise needed for price to reach breakeven.  And a rise to the October 2014 low should move the option up 100%.  On a successful bottoming pattern in a stock, an earnings announcement in this position will often lead to a gap up which breaks the down trend line.  So I would expect a gap up to above the 36.25 level if the bullish formation continues.

Click on Chart to Enlarge

This chart is also NTAP but shows a 20 period money flow index.  The interesting thing here is the massive bullish divergence in money flow index.  It is at a multi month high as price is hitting lower lows.  If you look back at the low last May previous to earnings, there was a nearly identical bullish divergence pattern in advance of the earnings announcement and breakout of the downtrend.

Understand here that if things don't go as expected, the option will lose almost all its value, possibly rapidly.  So consider this for educational purposes.

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