A possible multi-bagger opportunity: NAV

As a weekend routine I was going through my portfolio to assess possible winners and loosers and I came upon a possible winner. NAV (Navistar) has been my favourite stock till now giving me handsome returns as it follows the trend lines. The reason I say that it is a possible winner is because it will be announcing earnings on June 5th 2014. So yes, it is an earnings play which is more likely a gamble. But this one could be a calculated gamble if you look more closely.

Looking at the chart it clearly follows the trend lines. I compared the stock movements to the previous earnings and everytime it missed the earnings the stock price was touching the upper channel the day before and tumbled the following days to kiss the lower trend line. But when it beat the earnings it was at the lower trend line the day before and spiked up massively to touch the upper trend line. Notice the last conference call which was on April 24th where CEO Jack Allen announced that they are increasing production rate at two of their sites as the number of orders have increased. You can read more about it here. The other points to consider is that Big players like Carl Icahn and Julian Robertson have invested in NAV at a purchase price of 37.76 and 33.65 respectively. Do they know something? Maybe.

So the way I am going to play this is buy buying June calls which are going for 1.10 as of this writing. If the stock price drops further down to 32.96 area the options will be cheaper. Also notice that it has a low IV rank of 47 with a delta of 55. So if they beat the earnings and meets our target price , you can expect the option premiums to go for 10.30 which could be a profit of 570%. Else since its an earnings play and so the move can be huge, you can buy far out of the money call (say 39 strike for .20) which will increase you profit percentage to around 900%. But this increases the risk as well.

I am planning to gamble $1000 on this for a potential minimum profit of $5000.