Options Trade - BMC Software, Inc. (BMC)

Earnings A Bearish Bet on BMC Software!

**OPTION TRADE: Buy the BMC Nov 2012 35.000 put (BMC121117P00035000) at or under $0.60, good for the day. Place a protective stop limit at $0.20 and a pre-determined sell at $1.20.

by Ian Harvey

August 14, 2012

Introduction

The market has had quite a good run higher the last couple of weeks or so. Some pretty decent economic reports have spurred this rally, but a dark cloud is still hanging over the global economy. The trade suggestion listed below has a lot of similarities with the market as of late. BMC Software (NASDAQ: BMC) missed estimates on a couple key factors that analysts look for, but the stock has still managed to rally higher.

Therefore, the trade idea suggested might be able to take advantage of that dark cloud.

The Company

BMC Software, Inc. (BMC) is a software company. The Company provides information technology (IT) management solutions for large, mid-sized and small enterprises and public sector organizations around the world. BMC also provides its customers with maintenance and support services for its products and assist customers with software implementation, integration, IT process and organizational transformation, and education services. The Company operates in two segments: Enterprise Service Management (ESM) and Mainframe Service Management (MSM).

The Rationale

Earnings Report

BMC reported earnings on Aug 1, and they weren’t exactly good. The company missed estimates on revenues and earnings per share, and the stock tumbled lower.

For the quarter ended June 30 (Q1), BMC Software missed estimates on revenues and whiffed on earnings per share.

Compared to the prior-year quarter, revenue was unchanged and GAAP earnings per share dropped significantly.

Margins dropped across the board.

Revenue details

BMC Software tallied revenue of $504.4 million. The 12 analysts polled by S&P Capital IQ predicted sales of $521.9 million on the same basis. GAAP reported sales were 0.4% higher than the prior-year quarter's $502.4 million.

Dollar amounts in millions. Non-GAAP figures may vary to maintain comparability with estimates.


EPS details
EPS came in at $0.65. The 14 earnings estimates compiled by S&P Capital IQ anticipated $0.75 per share. GAAP EPS of $0.33 for Q1 were 38% lower than the prior-year quarter's $0.53 per share.

Non-GAAP figures may vary to maintain comparability with estimates.

Margin details

For the quarter, gross margin was 70.7%, 350 basis points worse than the prior-year quarter. Operating margin was 14.7%, 820 basis points worse than the prior-year quarter. Net margin was 10.7%, 830 basis points worse than the prior-year quarter.

Since the Earnings Report

Since the earnings decline, BMC has been on a tear higher, so why the bearish outlook? The stock has rallied right to a resistance point just below $42 on an extended move up. For this trade idea to work, resistance needs to keep this stock from heading higher, and buyers will need to agree that it’s currently overbought.

What might be also advantageous is volume has been declining over the last week, which might indicate the buying is drying up.

Therefore, based on the facts above the following options trade is recommended…..

**OPTION TRADE: Buy the BMC Nov 2012 35.000 put (BMC121117P00035000) at or under $0.60, good for the day. Place a protective stop limit at $0.20 and a pre-determined sell at $1.20.


”Success is simple. Do what's right, the right way, at the right time.”


Option Tip for your Success!
Options traders are not successful because they win.
Options traders win because they are successful.



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