Let's Improvise as iRhythm Technologies Heads into Earnings

Playing earnings harkens back to my younger years.

I loved playing earnings. But over the years, I've mellowed a bit. And while I spent Monday talking about how strong charts are often passes for me with earnings ahead, every once in a while I find one I'm willing to play. In the case of iRhythm Technologies (IRTC) , a cardiac monitoring technology name, it isn't the strength of the chart I want to play, but rather the potential of the move, should strength play out. The company is slated to report on Thursday. 

Now, I would normally be a buyer of the IRTC chart. Shares are breaking out higher for a second day and now above resistance. This rounding consolidation pattern is repeating for a second time. We have a bullish crossover in the MACD and Full Stochastics indicators. The parabolic stop-and-reverse (PSAR) has been bullish for a few days. Shares are riding the 21-day simple moving average (SMA) higher, something I like to see.

But with earnings, I would normally take a pass; however, there is something in the IRTC giving it extra appeal. The possibility of a huge gap-fill waits in the wings. Now, I don't think the stock will go to the $130s, however, there isn't a ton of resistance to $95. This thing loves to move big on earnings. I could even understand a volatility play here looking for $50 or $95 post-earnings. The market has been crazy enough for a move like that to play out. 

The bid-ask spread is wide on this name, so if I don't get a fill, I won't push here. You either get your price or you let it go. There is no reason to chase.

The Trade:

Buy to open Nov. 19 $80 call at $4.50

Net cost: $450

Max risk: $450

Max reward: Unlimited

Breakeven: $84.50

Days until expiration: 17

This one will have to be small because being wrong means a total loss. Going out to December doesn't feel like a good solution. I'd rather create a call spread in this case. IRTC will either pop or drop, likely in a big way. I don't have anything yet and I might even consider bumping down the entry target by a dime but if the market serves up an entry into the close, I'll take it.

none yet

At the time of writing, Tim Collins had no position in any security named, but could in the future.