ESI (Long)...

ITT Educational Services is a post-secondary education firm in the US. It offers over 30 degree programs on the associate, bachelors, and master levels at over 100 facilities in 37 states, serving over 60,000 students. ESI does not pay a dividend and is optionable. The options chain is liquid and has both tight strikes and tight spreads. Note that ESI reports earnings this week, before the open on Thursday 21 January 2010.

ESI scores a 3/1 on the screens. ESI scores 100% on both the Warren Buffett and Joel Greenblatt screens, 93% on the Peter Lynch screen, and 85% on the Martin Zweig screen. This is an interesting mix of screens to perform well on, as it has a good blend of growth and value.

ESI is in a very interesting place technically. It's rallied about 20% from lows in December from $85 to its current level of $100. $85 appears to be a strong support level, and above it we now have the 50-day and 200-day EMAs just below current levels around $96.50 and $98.50, respectively. ESI also has a big gap-down to fill that would take it up to $110.

ESI's in a tricky place because it reports earnings this week, so it makes for a complex play. I usually don't play stocks before earnings due to the unpredictability of the stock's reactions to earnings. In this case, I'm going to, but I'm going to construct a multi-legged options strategy to reduce my earnings risk. I don't have this one entirely worked out yet, to be honest. I'm considering a call spread combined with either a put purchase or a put spread, and I'm also considering a strangle. I'm looking at various purchase and sale combinations of the February $95, $100, and $105 calls along with the February $100, $95, and $90 puts. I'll detail what I do if/when I make a pre-earnings move.



Position: none

Disclaimer: This is not a recommendation and is presented for informational purposes only.