Red Hat, Inc. (RHT) is scheduled to report earnings after the markets close on Tuesday, 3/22/16.
Last quarter, the stock had the following price movement after reporting earnings:
Dec 18, 2015
Dec 17, 2015
(RHT) can be very unpredictable in terms of price movement post-earnings. A few keys to picking a strategy to use is the amount of movement allowed (up or down), strike price increments available, and the cost to place the trade. On this specific (RHT) trade, I think the Neutral Calendar Spread strategy is the right way to play this trade. The break-even points are very wide, and the price is very good. Even if the stock moves $5.00 + or more either way tomorrow, this trade will still do well and hold value even if it moves more than that, so I consider this trade very low risk with great potential. 9.5/10.
Note: I recommend placing this trade as soon as possible, as the value will most likely increase throughout the day. There is a possibility that the trade can be closed out for a profit by the end of the day if filled early. I will post that at the end of the trade details.
Here is how the trade is placed:
Sell -25 RHT Apr16 75 Call
Buy 25 RHT May16 75 Call
NBBO 0.40 – 1.10. Try to pay 0.75 or less for this trade. At a maximum, pay up to 0.85 if late.
If there is an opportunity to close out the trade early (taking less profit) if your order is filled at 0.80 or less, place the closing order out at 1.25 as a day order only.
I will post the price to close this order out tomorrow pre-market, right before the opening bell
See the attachment for the profit/loss chart.
Update 1: 9:25 am EST: Pre-market, the stock is down about $2.50/share, so using the Neutral Calendar Spread strategy looks very good here. I am placing the price to close the trade out at 1.90 for now. I will update any changes here, if needed.
Update 2: 1:05 pm EST. This trade is looking excellent right now. Time-decay and the current movement is going to increase value quickly. The price to close the trade out is still at $1.90.