Zillow Group, Inc. (Z) is an online real estate services business that seeks to connect consumers with professionals online. The company’s stock is currently trading around $96.90 in a 52 week range of $81.07-$164.90. The stock has been relatively weak this year with shares falling around 6.8% year to date. Z is set to report earnings after the bell today and the stock is looking weak ahead of the release. Z stock is lower on the session by around 1.8% ahead of the report.

The stock is likely under pressure due to Zillow’s dismal historical performance record on earnings day. Over the past 12 quarters Z has sold off on earnings day 8 times with an average move of 8.08%. The stock has also sold of 8 times in 12 quarters from earnings day to options expiration. Z also looks very weak on a chart. The stock is trading well below the Ichimoku Cloud on the daily bar, and both major moving averages are well below the cloud. With a bearish historical performance record and a weak technical setup it is difficult to justify anything but a short in Z.

The options market is currently implying a move of around $7.00 in Z by this Friday’s close giving us a downside target around $89.90.

Potential Bearish Earnings Trade: Buying the Z May 94-90-86 Put Fly for $0.65
Risk: $65 per 1 lot
Reward: $335 per 1 lot
Breakeven: $93.35 and $86.65

This trade offers a better than 5-1 reward to risk setup and profits near its maximum at the measured move target.

Andrew Keene

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