Premium Earnings 2-19-19: CVS Health

One name today one that reports before the open Wednesday, CVS Health, $CVS.

CVS Health, $CVS

CVS Health, $CVS, started lower from a double top at the end of November. It accelerated to a Christmas Eve low and found support. After a small bounce it pulled back again, to a higher low, and is now making a higher high as it nears the 200 day SMA. It has a RSI rising in the bullish zone with the MACD moving higher and positive. There is support lower at 68.75 and 65.40 then 64.50 and 63. There is resistance above at 70 and 72 then 73.25 and 75 before 76.90 and 78.50. The reaction to the last 6 earnings reports has been a move of about 3.47% on average or $2.45 making for an expected range of 67.25 to 72.25. The at-the money February 22 Expiry Straddles suggest a larger $3.40 move by Expiry with Implied Volatility at 65% above the March at 31%. Short interest is low at 1.1%. Open interest builds from 62 to a peak from 65 to 66 on the Put Side. On the Call side it very large and focused at 70.

Trade Idea 1: Buy the February 22 Expiry 69/67.50-67 1×2 Put Spread for free.

Trade Idea 2: Buy the February 22 Expiry 70/71 Call Spread ($0.50) and sell the February 22 Expiry 66 Put for 7 cents.

Trade Idea 3: Buy the February 22 Expiry/March 72.50 Call Calendar ($0.55) and sell the February 22 Expiry 66 Put for 12 cents.

Trade Idea 4: Sell the February 22 Expiry 65/75 Strangle for a $0.45 credit.

#1 gives the downside with leverage and a possible entry at 67. #2 and #3 give the upside using leverage and may put you in the stock at 66. #4 is profitable on a close between 64.55 and 75.45 at Expiry. I prefer #2 or #3.

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