Considering Three Earnings Plays

This article originally appeared on RealMoney.com on Sept. 3, 2014 at 3:30 p.m. To read more content like this AND see inside Jim Cramer's multi-million dollar portfolio for FREE... Click Here NOW.

I have stepped aside from my bond short again as all my downside targets were hit and now Treasuries are bouncing. I feel like we are back into a neutral risk-reward on either side of the trade.

I will add I'm impressed with the strength in the Europe, China and the emerging markets today. I half expected to see one more small push lower before any of them bounced -- if Europe was going to bounce at all -- but we simply did not see it.

Checking earnings into tomorrow and I was surprised to find three stocks that have post-report trades that seem worth a shot. The three stocks are Joy Global  (JOY) , Ciena  (CIEN) and Verifone Systems  (PAY) .

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The trade on JOY requires a purchase of September monthly slightly in-the-money calls at the close. The stock has moved 5.5%, 3%, -1.4% and 11% from the close tomorrow to its maximum height before the monthly expiration. After Thursday, I anticipate the monthly at-the-money calls will only be pricing in a premium around 2% to 2.2%, so something a bit deeper could be at 1.5% or less.

Given the history of the maximum moves, and even the moves at the expiration date, this trade would have been profitable three out of four times with at least two doubles in there, potentially three. The one loss would have taken most, but not all, of the premium from the long call. Overall, it is a very attractive risk-reward.

PAY is very similar to JOY. The stock has trended higher into monthly expiration for four straight times, albeit in tepid amounts. Still, it makes a small purchase of PAY shares or in-the-money calls at the close worth a try. At the open, I would follow the trend. If the stock opens green, then I would be a buyer. If PAY opens red, then I will be looking to short the stock. The target here is a 2% to 4% gain.

Last is CIEN. This one is a little different, but similar to other trades I have made. CIEN is another one where I'm interested in buying straddles at the close if they are priced at 6% or less for the September monthly expiration. From close to maximum move, the stock has moved 6% to 9% three times, but only closed at 6% or above for two of the last four times. So this isn't one I would hold all the way until expiration, but rather give it a shot for a week.

If any of the names moves more than 12.5% tomorrow, I will pass on the trades.

 

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At the time of publication, Collins had no positions in the stocks mentioned.

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