How To Play Tiffany's Options Going Into Earnings?

Tiffany & Co. (NYSE: TIF) shares have seen a good ride in the last month, up around 11 percent. The Street is expecting a decent third-quarter performance from the company when it declares results next Tuesday.

Senior Market Strategist at Trading Advantage, Scott Bauer, was on Bloomberg recently, where he discussed his strategy for playing Tiffany's options before its results.

"I like this stock even before the news out of China this morning," Bauer said. "So with earnings coming out and with that $96.50–$97 level really being support, I want to sell the Dec $97.50 Put and buy the Dec 110 Call. I can do this for around zero, doesn’t cost me anything. Now, the reason I want to do this is because if we get Tiffany going back to around $97.5 level, I am going to buy this stock anyway. I don’t mind being long this stock."

According to Bauer, this type of trade gives him unlimited upside, while the downside remains capped as he would have bought the stock anyways if it would have gone down.

Bauer agreed that this was a leverage way for him to play on the expected gains that Tiffany shares will have going into earnings. However, he cautioned and reiterated, "I am only doing this because I would buy the stock anyway, if it did declined to that $96-$96.50 level. So, because of that point I do have this leveraged way of getting into the upside on the earnings call."

Tiffany was recently trading at $103.79, down 0.47 percent.