Sears Stock Looks Weak -- Here's How to Profit With Options

Sears Holdings  (SHLD)  plans to report earnings Thursday before the open. The prospects for this company are dismal. Fundamentals are weak and getting weaker, and the chances for Sears to return to profitability are distant.

Revenue has declined every year since 2010, and net losses were reported every year since 2012. The company has too much debt.

The current stock chart as of the close on Wednesday shows the likely weakness in stock price before earnings are reported. The stock price, in the mid-$50s five years ago, declined to the current level of less than $13. With support at $11, the current price and bearish candlestick foreshadow further price declines.

The ill-fated combination of Sears and Kmart has not worked out well, and the elusive concept of profitability appears only in the distant past.

With these pessimistic fundamental and technical realities in mind, a bearish move seems the most appropriate in anticipation of earnings. The Dec. 9 options expire in eight days. The 13 put option closed Wednesday at an ask of 1.16. With trading fees, this costs $125, with the break-even price of the stock at $11.75. This level does not seem unreasonable, and the price might go even lower.

This article is commentary by an independent contributor. At the time of publication, the author held no positions in the stocks mentioned.

Besides blogging at TheStreet.com, Michael Thomsett also blogs at Options Money Maker, the Top Advisor's Corner at Stockcharts.com, and Seeking Alpha. He has been trading options for 35 years and has published books with Palgrave Macmillan, Wiley, FT Press and Amacom, among other publishers. He is working on a new book on options math, to be published by Palgrave Macmillan in 2017.

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