KMX #1 Stock Pick: Deep ITM LEAPS Play Ahead of Earnings – Ride the Recovery Wave

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📈 KMX Pre-Earnings Strategy for Automotive Stock Ahead of June 20 BMO Catalyst

Ticker Confidential | Author: Hedge Fund Strategy Desk | Date: June 18, 2025

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📅 Earnings Setup: June 20 (Before Market Open – BMO)

All eyes are on the upcoming earnings release scheduled for June 20, and expectations are heating up across the options and equity markets. This stock—widely held among institutional portfolios—has shown strong resilience in the consumer discretionary/automotive space and is entering earnings with implied volatility (IV) projecting a ±9–12% move.

This article outlines both price scenarios and a LEAPS (Long-Term Equity Anticipation Securities) call option strategy that could benefit from a positive surprise, while limiting downside with predefined risk.

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🔍 Scenario-Based Price Forecast

Here’s a quick breakdown of potential market reactions based on earnings results and forward commentary:

Scenario	Outcome	Estimated Price Range
Bear Case	EPS miss (~≤$1.15) + cautious tone	$58 – $60
Base Case	In-line EPS (~$1.20) + neutral tone	$68
Bull Case	EPS ≥ $1.25 + upbeat tone	$72 – $75
Outlier	Blowout EPS (~$1.35+) + bullish guide	$78+

📌 The base-to-bull range ($68–$75) is where the stock would likely land if expectations are met or exceeded. A move into the $72–$75 zone would reflect strong earnings delivery and provide a short-term trading opportunity and a potential springboard for long-term upside.

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🎯 Why $72–$75 Is the Target Zone for KMX

• This range has historically acted as strong resistance, meaning a break above it post-earnings could invite technical breakout buyers.
• Options traders are already positioning for this price level, with significant open interest on $70 and $75 call strikes.
• A clean beat and guidance upgrade could elevate the stock past pre-earnings highs, placing it into the higher valuation tier seen in its peer group.

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🧠 LEAPS Call Strategy: Long-Term Bullish with Event Catalyst

Strategy: Buy 1–2 contracts of Jan 17, 2027 $55 Calls, priced around $20.10 with delta ≈ 0.75

📌 Why This Call?

• Delta of 0.75 means the option will move about 75 cents for every $1 move in the stock—providing high sensitivity to upward movement.
• LEAPS expiration (Jan 2027) allows ample time for long-term trends (EV growth, supply chain efficiencies) to play out—even if the earnings move is muted.
• The $55 strike is comfortably in-the-money, giving strong intrinsic value and lower time decay compared to OTM calls.

💰 Breakeven:

$55 strike + $20.10 premium = $75.10
→ You need the stock to trade above $75.10 by Jan 2027 to realize profit at expiration.

📈 Profit Potential:

Price at Expiry	Intrinsic Value	Net P/L	Return
$60	$5	-$15.10	-75%
$70	$15	-$5.10	-25%
$75	$20	-$0.10	Break-even
$80	$25	+$4.90	+24.4%
$85	$30	+$9.90	+49.2%

📍 Note: These are simplified estimates and exclude spreads and fees. Actual results depend on timing and volatility shifts.

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🚀 Catalysts Driving the Bull Case

• Strong EPS Beat: Any result significantly above $1.25 will likely confirm operational strength and justify higher multiples.
• Positive Forward Guidance: Management tone matters. An optimistic outlook for H2 2025–2026 could push the stock higher even if the EPS is just in-line.
• Sector Tailwinds: The automotive space is regaining momentum, especially in EV penetration, cost-cutting post-COVID, and omni-channel retail enhancements.

Learn more about Catalysts at Investopedia

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⚠️ Risks to Consider: KMX

• Steep Premium: At over $20 per contract, the LEAPS call is not cheap. A poor earnings result could cause immediate IV crush and losses.
• Macro Volatility: Broader risk-off sentiment (e.g., from rate hikes or geopolitical shocks) could drag down even good performers.
• Time-Based Opportunity Cost: Long-dated calls lock up capital. If the stock doesn’t move quickly, better opportunities may be missed.

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🛠️ Execution Strategy

Pre-Earnings Window (June 16–June 19):

• Consider opening 1–2 KMX LEAPS contracts during this window to benefit from IV expansion and the earnings run-up.

Post-Earnings (June 20 onward):

• If the stock surges past $72–75, consider taking partial profits and leaving a runner.
• If results disappoint, evaluate re-entry or reposition once IV resets.

Alternative Plan: Use part of the premium to buy a short-term put to hedge against a downside gap. This converts the trade into a limited-risk earnings play.

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✅ Final Summary & Action Plan for KMX

• LEAPS Entry: Jan 2027 $55 Call (~$20.10), Delta ~0.75
• Breakeven: $75.10 by Jan 2027
• Target Zone Post-Earnings: $72–$75 (bull case); $78+ (outlier)
• Catalyst: Earnings release June 20 BMO
• Risk Strategy: Scale out on breakout, reevaluate on macro changes

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This is an advanced yet strategic pre-earnings LEAPS setup that blends near-term event potential with a longer-term secular thesis. Whether you’re a swing trader looking for event-driven returns or a position trader aligning with mega trends, this call option offers leveraged exposure with a defined risk profile.

📊 Disclosure: This article is for educational purposes only. Options carry significant risk. Do your own due diligence before trading.

Learn more about Deep ITM LEAPS Strategy from our Stock Options Education Series