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Slack (WORK) Earnings preview and a call spread vs call comparison.
3 min read

Slack (WORK) Earnings preview and a call spread vs call comparison.

Slack (WORK) Earnings preview and a call spread vs call comparison.

  • Slack (WORK) reports Q1 earnings tomorrow (Thursday the 4th) at 4:15pm
  • Consensus EPS of ($0.06) on revenue of $186.54 Mil

Overview

WORK stock has certainly been a darling during the stay at home period and like Zoom, has been ramping higher into its earnings event. But like ZM is much of the euphoria already priced in and what could the company report that would surprise investors at this point?

The Set-Up

WORK saw a low below $18 in March and is now approaching $40 having established a new all time high dating back to its IPO. It was $31 last week.

A good earnings report comparison may be ZM yesterday which was up massively over the past week, had options pricing a 15% move over the next 2 weeks (now 11%) and initially was flat after the report (but now up 6% on the day).

In other words, it still seems like these expected moves are pricing in wild day to day movement more than 1Q earnings. Those two things need to be considered when trying to figure out trade strategy.

Here's WORK's 2 week expected move chart, from OptionsAI technology, about 14%:

And here's the 1 month, about 17%, so you can see most of the move is expected near term:

Ways to Play

WORK has a very high short interest as a percentage of its float. That is likely to mean there are buyers looking to cover below on any earnings disappointment, that could keep a lid on the possibility of a massive move lower. That also leaves the possibility of some short squeeze to the upside.  But ZM's earnings are instructive here as a lot of the move higher happened into the event, and a lot of that was probably short covering. Therefore long premium needs to be very careful playing for a big move in either direction on the event itself.

Bullish

As far as a bullish strategy I think it makes sense to take a lesson from Zoom and not play for a massive short squeeze higher. If Slack is higher on earnings you don't want to own out-of the money calls that stay out of the money, they are really pumped. Rather, you want to use them to your advantage to help finance at-the-money. For instance, here's a bullish target in line with the expected move (about $45 for Jun 19th expiration):

That is a very nice risk/reward playing for a move $5 higher, and having a breakeven only $1.70 higher.

What's really amazing about that trade is its cost of $1.58 is exactly the same price as the 45 calls. Would you rather own a 40/45 call spread for 1.58 or a 45 call for 1.58? That should be an easy answer.

Bearish

Similar thinking to the bullish strategy, stick to the expected move with all that short interest below, but the risk/reward of a put spread to the bearish consensus is a little worse that the bullish call spread because the skew to the out of the money puts isn't as severe as the out of the money calls.

Neutral

Here's how selling the move entirely looks like with an Iron Condor, from OptionsAI technology with a neutral target for June

That's more than a 2 weeks for this stock to resume it's craziness even without a big earnings move so it seems like threading the needle. Vol should come in quite a bit after the report though but 45 and 35 seem kind of tight for 2 weeks of watching this thing trade.

Or course WORK still has 24 hours to go before the report so any positioning needs to take into account that the stock may be in a vastly different spot tomorrow at this time.

See a part of OptionsAI technology with your own price target and demo trades in AAPL HERE

Previously:

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