Aruba Networks (ARUN) has been trending lower in a channel since the beginning of October as it heads into earnings tonight. The mos recent action in that channel has been higher after retracing 50% of the move higher from July through to October 1st, with a stall at the back test of the 38.2% Fibonacci level. The Relative Strength Index (RSI) has refused to move into bearish territory and has been level with the Moving Average Convergence Divergence (MACD) indicator slightly positive, but also flat after improving throughout late October.
I give a slight bias to the downside for a continuation in the channel, but also note that with short interest over 20% it could squeeze on a well received report. A move over resistance at 19.60 sees further resistance at 20.37 and 21.20 followed by a gap to fill to 22.18 and then the 23.19 previous high. Support lower comes at 17.78 and a gap fill to 16.95 followed by 16.10 and another gap fill to 15.60 then 14.85, 13.25 and a full retrace to 12.37.
The reaction to the last 6 earnings reports has been a move of about 11.57% on average or $2.17 making for an expected range of about 16.55 to 20.95. The at-the money November Straddles suggest a slightly lower $1.90 move by Expiry Friday with Implied Volatility at 212% above the December at 63%.
Trade Idea 1: Buy the November 19 Straddle for $2.00.
Buying both the November 19 Put and Call as it is slightly cheaper than the historical expected move.
Trade Idea 2: Sell the November 19 Straddle and buy the December 19 Straddle for $1.45.
A play for a normal or less move with volatility bleeding out of the November options.
Trade Idea 3: Buy the November 18 Puts for $0.70.
Trade Idea 4: Buy the November 18/16 1×2 Ratio Put Spreads for $0.40.
Buying the November 18 Put and selling 2 of the November 16 Put, makes money on a close between 14.40 and 17.60.
Disclaimer: The information in this blog post represents my own opinions and does not contain a recommendation for any particular security or investment. I or my affiliates may hold positions or other interests in securities mentioned in the Blog, please see my Disclaimer page for my full disclaimer.
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