Deere & Co (DE) is a manufacturer of heavy machinery and vehicles for agricultural, forestry and construction applications. The stock is currently trading around $91.20 in a 52 week range of $78.88-$98.23. DE has performed relatively well this year with shares rallying 3.2% year to date. Despite the stocks relatively strong performance this year its chart and historical performance record are indicating it might be a good short ahead of earnings before the bell tomorrow.
DE is set to report earnings tomorrow before the opening bell and the stock record on earnings day is extremely bearish. Over the past 12 quarters the stock sold off on earnings day 9 times with an average move of 2.64%. Currently the options market is implying a move of around $3.00 (3.3% ) higher or lower by tomorrow’s close. The stock is selling off today and is now below the Ichimoku Cloud on the daily bar. With a weakened chart setups and a dismal performance record DE is appearing to set up well for a short.
Using the implied move I can calculate a downside target for DE by tomorrow’s close. I will look to set up an options strategy targeting a move to $88.20 by tomorrow’s close. With this target in place I can now set up an options trade.
Possible Trade: Buying the DE Aug 90-88 Put Spreads for $0.50
Risk: $50 per 1 lot
Reward: $150 per 1 lot
Breakeven: $89.50
James Ramelli
Trader/Moderator
AlphaShark Trading
