Halliburton (HAL) kicked off the week reporting earnings of $0.23 per share on revenue of $5.7 billion. This is basically in line with expectations on the EPS side with a small upside kicker on revenue. The stock has been a bit of a roller coaster Monday morning trading to $32, then down under $30.70, before finding buyers. Bulls managed to find green again shortly before the noon hour, something not common for post-earnings Halliburton.
Over the past nine reports, HAL has closed red seven times with another essentially being flat. That means a green close above .5% today will be only the second time in two-and-a-half years. Still, green hasn't meant much nor been easy to find in the days to come afterwards. Moving forward eight days, 13 days, and 21 days, we find pretty much the same result with the eight day time frame being the best for the bulls.
Measuring out risk versus reward on multiple option strategies it became clear the overarching driver of ideas centered around the lazy action of the stock post-earnings. In every case, a bearish call spread came out on top with the 13 to 21 day time frame being optimal. That targets around the middle of May with the May 10th expiration cycle falling in the middle of those two time frames.
In terms of upside, capping an expected move around 2% offered the best long-term solution. While the stock has jumped more than that, it has been only accomplished a couple of times, so pricing a breakeven above 4% should increase the chance of success. Add in the staunch resistance around $32.50 on the weekly chart and the trade starts to come together.
Sell to open May 10 $32.50 call
Buy to open May 10 $34 call
Net credit $28
Max Reward $28
Max Risk $132
Breakeven $32.78 (4.5% higher)
Days until expiration: 18
The stock would have to move around 8% for a trader to sustain the max loss. Definitely possible, but history says it is rare. Should the stock close above $32.50, it will be a big yellow flag so watch closely, but unless the entire market blasts higher, I don't see HAL doing much over the next few weeks.