How to Play Adobe Ahead of Earnings

By Andrew Keene Dec 13, 2012 3:20 pm

Whispers from the company are that revenue is going to be $0.55 per share, missing the Street's expectations

Adobe (NASDAQ:ADBE) software comes out with earnings today after the close at 3:30 CST and can hopefully Photoshop some profits into your pockets. Currently the stock is trading at the $35 level and is above the moving averages, ranging from the 50- to the 200-day, however it only increased in stock price by 2.59% year-to-date. When reviewing the past four earnings, ADBE split out, posting gains in two of the quarters and losses in the other two, with an average move of 4.4%. Revenue was only $1.08 billion, down 3.8% sequentially and products only generated 75% of revenue, which was down 0.18% sequentially. Expectations on the Street are a posted earnings of $0.57 per share, down from $0.67 a year ago, and whispers from the company are that revenue is going to be $0.55 per share, missing the Street's expectations. With not a lot of movement generated from earnings and a slow overall growth of company stock price, our trade is as follows:

Trade: Buying the 31-33-35 put fly for $0.40

Risk: $40/ 1 lot

Reward: $160 / 1 lot

Breakevens: $31.40 and $34.60