STOCK: CVS

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).

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.

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.

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... ;-)

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.

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

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

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.