(By Rich Bieglmeier) Brown Shoe Co. Inc. (BWS) is expected to report earnings before the market opens on Tuesday, August 28, 2012. Management will host the conference immediately afterwards.
Wall Street anticipates that BWS will earn $0.03 for its 2nd quarter. iStock expects the footwear retailer and wholesaler to report earnings that will exceed Wall Street's consensus number. The iEstimate is .04 cents – a 1 cent upside surprise.
The shoe maker's history of bullish earnings surprises was uninterrupted for nine consecutive quarters, starting in November 2008 and ending in March 2011. Since the hitting streak ended, Brown Shoe swung and missed four out of the last six quarterly checkups.
Much like the specialty retailer's up and down earnings' announcements, BWS's stock price has been all over the place in the days surrounding the announcement. Nine of the last sixteen reports shareholders lost money, and in seven instances cheered gains.
With a track record like that, traders might be wonder how in the heck can they be on the right side of the trade this coming Tuesday? Ready for the aha moment? In 10 of the 16 eps releases, the price moved by at least 11% and by as much as 42%. In seven of the last eight, the stock zigzagged a minimum 12% and a max of 36%.
In iStocks's view, buying a call option and a put option, simultaneously, might be a strategy that could prove to be profitable. In the last two years, the average move, one way or the other, has been 18.5%. Based on BWS's current price, the average move would put shares in the range of $12.18 to $17.72 (+/- $2.77).
As we write, the September 15 call option has a bid of 60 cents and an ask of 80 cents. In all likelihood, investors can pick up calls for something in between the spread. The September 15 put option has a bid of 80 cents and an ask of 95 cents. Once again, you might be able to pick them up somewhere in the middle.
However, for our purposes, we use the max price for our example. Investors would purchase an equal number of September 15 calls and puts, with a combined debit of $1.75, to execute this strategy.
The trade will be profitable for investors if Brown Shoe's price falls below $13.25 or rises above $16.75. Considering its recent history, we put the odds of it happening at better than 50/50. The max loss for would be $175 per call/put combo, not including commissions, margin, fees…
As always with options,
make sure you know what you are doing because they are risky and have your
broker answer all you questions to meet your comfort level. Otherwise, iStock
sees Brown Shoe Co. Inc. (BWS)
earnings as an opportunity to risk a little with the potential to make a lot if
history prevails.
(Image courtesy: GSPhotography / Shutterstock.com)