Market Overview

Restoration Hardware: The Next Retailer To Breakout?

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Restoration Hardware Holdings, Inc (NYSE: RH) reports earnings after the close on Monday. Based on June option pricing, the implied move for the stock is 15 percent. This is no small move...the range that the market makers are pricing in for the stock is $96.25 - $130.25 (based on > a closing price $113.28). This does make sense considering the average move of the stock in its last five earnings reports in roughly 22 percent.

Considering there have been several recent sizable option trades with a bullish stance & the short interest is 35 percent of the float, I would also take a bullish stance for earnings.

Recent option activity:

- 4,750 Jun 110/120 call spread @ $3.25, ~ $1.5M option premium, trade date 6/5

- 4,100 Jun 115/130 call spread @ $4.45, ~ $1.8M option premium, trade date 6/8

TTG Trade Idea: selling a put spread and buying a call spread

- sell the Jun 112/107 put spread and collect $1.90 (max gain)/ risking $3.10

- buy the Jun 120/125 call spread @ $1.80 (risking) / max gain $3.20

- Essentially risking ~ $500 per contract in this structure (if RH closes < $107), to make ~ $500 if RH closes > $125 on Jun expiration. The ~ breakeven ($10 gain to be exact) isif RH closes between the strikes $112 and $120 by Jun expiration.

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Posted-In: Long Ideas Trading Ideas

 

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