Earnings Straddle Trade + A Potential 50% Move (BKI & IAC Analysis)
Last week’s Earnings Edge stocks didn’t disappoint.
Fiserv Inc. (Nasdaq: FISV) came out on Tuesday, dropping over 5%. It wasn’t enough to create a breakout for the stock, but we know the two key levels to watch going forward.
And Expedia Group Inc. (Nasdaq: EXPE) surged more than 5% after its quarterly report on Friday!
EXPE’s Post-Earnings Pop
This one is set to run higher from here.
Now let’s get into our two stocks to watch this week…
Earnings Edge Stock No. 1: Black Knight Inc. (NYSE: BKI)
Earnings Announcement Date: Tuesday, before the open.
Expectations: Earnings at $0.62 per share. Revenue at $381 million.
Average Analyst Rating: Outperform.
Black Knight, a Florida-based software data company, has focused on a niche in the market: data and analytics for mortgage and home loan lending and servicing.
By focusing on one particular segment of the software-as-a-service (SaaS) platform, Black Knight has all its eggs in one basket.
It’s making for one volatile stock. In the last six months, BKI shares crashed 16%, rose 20% and crashed 16% again. It was a continuation of BKI’s volatile ride in 2021.
Volatility Visualized With BKI
With the stock riding along the key support line (in green), this earnings announcement is a pivotal moment for the stock.
I’m expecting more volatility. It’s why we picked the company. A good or bad move on earnings, and we have a clear path for BKI’s next double-digit move.
Options traders are not pricing in a big move, though. They expect a 2% pop or drop this week. Odds are it makes a bigger move on the day.
That makes it an interesting play for a straddle trade this week, where you can buy a call and a put option with the same expiration and strike.
All you would need is a 5% move to generate a profit. And a 10% move would almost double your overall returns.
Earnings Edge Stock No. 2: IAC/InterActiveCorp (Nasdaq: IAC)
Earnings Announcement Date: Tuesday, after the close.
Expectations: Earnings at $0.90 per share. Revenue at $1.1 billion.
Average Analyst Rating: Outperform.
IAC runs online marketplaces like HomeAdvisor, Angie’s List, Vimeo, Dotdash and a few others. These businesses carried the stock higher going into 2021, but then it peaked. Since February 2021, shares have been sliding lower to what seems to be a tipping point this week with earnings.
Because, since November, IAC hasn’t gone anywhere.
It’s been bouncing right around $130 per share, coiling up like a snake that’s about to strike.
These periods of consolidation often lend themselves to sharp breakouts, and we know earnings can play a key part in this.
IAC Is Ready to Pop
With IAC trending right in the middle of the red resistance and green support lines, it gives the stock almost 10% of price movement up or down before it tests those key levels.
And the options market isn’t sleeping on this potential. Traders are pricing in a 5% move this week on earnings.
While it’s likely to move more than that, we don’t know the direction.
So the best way to play IAC, is wait for the breakout.
Once we get it, we know to expect a quick $55 per share run based on the height of the triangle pattern that the key levels form.
To the downside, that gives us a price target of $65 ($120 minus $55). And depending on the exact breakout level, it would send the stock well above $200 per share.
Either way, we are talking about a 50% move, which is going to be larger than anything we get on earnings. So look for the breakout, then jump in to ride the rest of the move toward the new price target.
Editor, Quick Hit Profits
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Investing has consumed my life since college. While double majoring in finance and economics at the University of North Carolina at Greensboro, I founded the university’s economics club, joined the finance club and participated in the Chartered Financial Analyst research competition to represent our school.