How to Play Joy Global Ahead of Earnings

By Andrew Keene Dec 11, 2012 1:44 pm

JOY will report earnings before the open on December 12. Here's what investors and traders can expect to see.

Earnings reports translate into stock movement. The questions are, which way, and for how many points? Tomorrow, Joy Global (NYSE:JOY) will report earnings before the open, so what can investors and traders expect to see? JOY opened trading today at $58.02, which is below 150- and 200-day moving averages, and the chart appears to be more on the bearish side. The stock is well off the November 1 high of $66.03, currently trading around the $58 dollar level and seems to have hit a top at the $58.25 level. Along with this, expectations about the earnings per share have lowered over the past month and underperformed on expectations last quarter. JOY has seen a negative change in stock price after earnings for the last three out of four quarters, with an average magnitude change of 5.9% post earnings. The ATM straddle is suggesting a 6.1% move, not too far off the expected move from earnings. With this in mind, our options play is as follows:

Buy the Dec 57.50-55 bear put spread for $0.80

Risk: $80 / 1 lot

Reward: $170 / 1 lot

Breakeven: $55.80