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STOCK: CVS

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1 STOCK: CVS on Thu Apr 30, 2015 1:59 pm

This is a somewhat risky idea I cooked up last night.

CVS Earnings Report May 1 (Friday)
PPS: 100.44
Long May 8 Calls @ Strike 101
PT: 102-104 (might hold into next week if results are really good)

Bullish Points

  • Share Price up 13 out of last 21 ER's (61%)
  • Up for the week following the last 6 ER's despite 2 EPS misses
  • Strong support at $100.30
  • Seemingly strong fundamentals for the company and sector (growing membership of their health insurance arm, YoY growth in revenue, positive results in the latest ERs from other retail/pharmacies WBA and RAD)
  • Beat estimates on 5 out of the last 7


Bearish Points

  • Trading near all time highs of $105.46
  • Trading at over 20x forward earnings (possible mean reversion to average of 17x in the cards)
  • Occasional EPS miss (the last few EPS misses still saw a profitable rise in PPS the same week)


If anyone has thoughts I'd love to hear them. I couldn't really find any negative press or analysis on CVS (at least that seems relevant going into earnings tomorrow).

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2 Re: STOCK: CVS on Thu Apr 30, 2015 4:20 pm

I haven't ever purchased any options contracts, so I probably can't help you with that. It looks like CVS has recently pulled back below the 50 day MA, which appears to be around 102, so that might be a good number to shoot for, hope that CVs hits the MA on Friday or Monday.

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3 Re: STOCK: CVS on Thu Apr 30, 2015 4:42 pm

Options are pretty tricky. I went with a straddle (a call and a put) except my put is a little out of the money since it's cheaper but will offer similar profit potential from these levels if ER is bad. I didn't expect the price to fall off 100.3 but that's what risk management is all about. We'll see what happens tomorrow. I think you're right about the 50SMA as a good target.

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4 Re: STOCK: CVS on Thu Apr 30, 2015 9:05 pm

CVS closed below the lower Bollinger band today....last time that happened it bounced a very small amount.
If I were betting, I'd think you sooner see $98 than you'd see $102 tomorrow....but I'm usually wrong... ;-)

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5 Re: STOCK: CVS on Fri May 01, 2015 8:46 am

If there is a move down in the cards I hope it at least cracks 97. They beat on EPS and revenue though but not by much. Shares are back up to ~100.50 PM. We'll see how the day goes.

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6 Re: STOCK: CVS on Fri May 01, 2015 9:54 am

Ha! I was right.....saw $98 at open....now its up....so my prediction of seeing 98 sooner was fleetingly right!....
Glad I was wrong on overall direction...but I still see some downside to this....my prediction is $98.5 by COB Tue

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7 Re: STOCK: CVS on Fri May 01, 2015 9:58 am

Good job on utilizing the BB for the right call! Worked perfectly AND quickly.

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8 Re: STOCK: CVS on Sat May 02, 2015 2:23 pm

Great call there. This sideways action might make my trade a flop if I can't get another one of those 2-5% earnings weeks. Gonna play ER further out next time to avoid the theta risk.

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