Deere Deflates

Deere & Co. (NYSE: DE) reported mixed earnings this morning. While earnings beat expectations, a $364.8 million charge was taken, sending earnings negative. Forecasts for revenue and earnings were also a little light; investors are not too shaken up though as the stock is only trading down 1.05%.

Deere’s front month implied volatility was near 42-43 yesterday, pre-earnings, with the historical vol near 38. Those front month options are deflating very heavily this morning; implied vol dropping to 29-30! Vol in the out months is still elevated to the 42-45 levels. I would suggest selling the Mar. 2010 40 put for 0.75 and buying the Dec 55/60 Call spread for 0.59. $40 has been a support level over the past 3 months and 60 looks to be the next major resistance level.