How To Trade Dell’s Earnings (DELL)

Shares of Dell Inc. DELL are lower on the session by 1.15%, currently trading at $12.05. The stock has been trading largely lower over the past five months, off from recent highs near $17.50. The $12.00 is a key pivot point, a large move either way is most certainly in order. For a full earnings preview, including EPS estimates, technical picture, and volatility breakdown, please click here On the options front, the picture is notably bearish. The August $12.00 and $11.00 puts are both seeing buyers, 1,987 contracts and 1,200 contracts, respectively, as well as the September $12.00 and $11.00 puts, which have been purchased 4,100 and 1,300 times, respectively. Volume exceed open interest on the Sept $12 put. On a risk/reward basis, a break below the $12.00 could be catastrophic for the stock, with the nearest support level around $10.50 to $11.00. Risk to the upside, via the 18-day and 50-day moving averages, is around $13.00. So what’s the trade? With options expiring this week, the front month volatility is beyond lofty, at 98% versus Sept’s implied vol of 42%. This structure is a prime set up for selling near term vol to voice a directional bet on the stock. Traders should look to sell the front month $12.00 straddle for $0.69 to buy the September $12.00 put for $0.57. That’s a net credit of $0.12.