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Mike Khouw's Electronic Arts Trade

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Mike Khouw spoke on CNBC's "Options Action" about a contrarian trade in Electronic Arts Inc. (NASDAQ: EA) ahead of the earnings report. The stock has been struggling lately and it hasn't performed well on earnings historically. The company is scheduled to report earnings May 7 and the options market is implying an 8.5-percent move in either direction.

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The implied move tells us that the short-dated options are more expensive than the long-term options, so Khouw wants to sell the May 100 call for $1.90 and buy the June 100 call for $3.50. The total cost of the trade is $1.60 and if the stock closes below $100 at the May expiration, Khouw is going to have the June 100 call, which breaks even at $101.60 at the June expiration.

Posted-In: CNBC Mike Khouw Options ActionOptions Markets Media

 

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