Will Finish Line Inc. (FINL) Run Higher on Earnings?

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Finish Line Inc. (FINL) is an Indianapolis based sports and athletic apparel retailer that operates approximately 850 brick and mortar locations across the continental US. Finish Line also sells direct to consumer via its multiple online presences. At the time of this post (11:40AM CST) FINL is currently trading at 28.10, down a modest 0.14% on the day. Despite gapping down considerably off of the 52 week highs following last quarter’s earnings report in late September, FINL has recovered well and is currently trading back in the upper half of its 52 week range of 22.99-31.90. The stock has remained in consolidation around the 28.00 price level since early December, but will look to break out of this tight range following the fiscal year Q3 earnings release on 12/19 before the opening bell.

Over the last eight quarters of earnings data available, FINL has traded largely bullishly, moving higher six out of eight sessions immediately following the EPS release, with an average historical post-earnings move of 6.5% during this same time period. It appears as though the options market is currently prepared for another outsized move following last quarter’s -14.9% earnings reaction, as the current ATM straddle price would indicate an implied directional move of somewhere between 10-20%, or over $5.00 in the underlying stock by this week’s monthly expiration on Friday 12/19/2014, the same day as the EPS release. As previously mentioned, FINL has rebounded well after last quarter’s post-earnings sell off, and currently the stock remains in a tight bullish consolidation pattern over the Ichimoku Cloud and all relevant moving averages on the daily chart. Looking at Finish Line’s recent historical tendency to trade higher after earnings, in conjunction with the bullish technical setup, I am currently leaning bullish in FINL and will be looking to get long this name into earnings this Friday.

Trade: Buying the FINL Dec 25-30 Call Spreads for $3.00
Risk: $300 per 1 lot
Reward: $200 per 1 lot
Breakeven: $28.00

Andrew Keene

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