Dear Momentum Options Subscriber,

The market was looking for some good news regarding the European Central Bank (ECB) and its quantitative easing (QE) initiatives but has pulled back following the ECB decision to leave interest rates unchanged. ECB President Mario Draghi offered clues that QE could start in early 2015, but that wasn’t what Wall Street or the European markets wanted to hear.

The bulls have rebounded off of the lows, but I mentioned this morning that the action might be subdued ahead of tomorrow’s Nonfarm Payrolls report. Estimates are for a gain of 230,000 jobs, but whisper numbers are as high as 275,000-300,000.

Turning to earnings, Smith & Wesson (SWHC, $9.33 down $0.18) is scheduled to report after the close. They will need another solid quarter to relieve some of the recent pressure, as shares are hovering near 52-week lows.

The stock has lost nearly 50% of its value since making a 52-week high of $17.28 and could reclaim $10 or test $8 depending on earnings. Analysts are looking for a profit of $0.07 a share on revenue of $105 million for the recently ended quarter.

The company has beaten estimates in the past four quarters by $0.01, $0.07, $0.06 and $0.07, respectively.

While it is not an official recommendation, the SWHC January 10 calls (SWHC150117C00010000, $0.40, down $0.05) look tempting and could be worth a gamble for bullish traders.

Bearish traders are playing the SWHC January 9 puts (SWHC150117P00009000, $0.45, up $0.05), although they aren’t as active as the aforementioned call options.

I’m tempted to take a bullish trade ahead of earnings, but it may be best to wait until after the announcement before possibly going long. An earnings beat with raised guidance should help get the stock back on track and might indicate that a bottom is in. There is plenty of upside to play a possible move to the mid-teens afterwards, but there is risk to $8.00-$7.50 on an earnings miss or disappointing news.

As far as the market, the Dow is down 8 points to 17,904, while the S&P 500 is lower by 2 points to 2,072. The Nasdaq is up 3 points to 4,777, and the Russell 2000 is declining 2 points to 1,177.

The current trades are holding up well, so let’s go check the tape.

Momentum Options Play List

Closed Momentum Options Trades for 2014: 95-56 (63%). All trades are dated and time stamped so new subscribers can look at the past history to see how the trades have played out.

Do not risk more than 5% of your trading account on any one trade but do try to take all of the trades. Please remember, all “Exit Targets” and “Stop Targets” are targets. You should not have any “Hard Stops” entered to close any trades or “Exit Orders” in your brokerage account unless I list one. I will send out a “Profit Alert” or “New Trade” if I want you to close a position or if a new trade comes out. Otherwise, follow instructions at all times in the 9 a.m. and 12 p.m. – 1 p.m. updates. Also, I will usually give you a heads-up if I think I’m going to send an email outside of these time frames.

All prices given in this update are current as of 1:10 p.m. EST.

Every new Momentum Options recommendation is listed with the price at which I entered my own position. If the price is slightly different than my recommended entry or exit price when you receive the alert, don’t let that keep you from getting into or out of a trade. Occasionally, you might even get a better “fill” price than what is posted in the Open Trades and Closed Trades.


American Express (AXP, $91.75, up $0.50)

AXP January 95 calls (AXP150117C00095000, $0.80, up $0.03)

Entry Price: $0.75 (12/3/2014)

Exit Target: $1.50

Return: 5%

Stop Target: None

Action: Shares have traded to a high of $91.85 today. Resistance is at $92.50. Support is at $90.


JDS Uniphase (JDSU, $13.15, up $0.03)

JDSU January 13 calls (JDSU150117C00013000, $0.65, flat)

Entry Price: $0.65 (12/3/2014)

Exit Target: $1.30

Return: 0%

Stop Target: None


JDSU March 14 calls (JDSU150320C00014000, $0.70, flat)

Entry Price: $0.70 (12/3/2014)

Exit Target: $1.40

Return: 0%

Stop Target: None

Action: Support is at $12.75 and the 50-day moving average. There is additional risk to $12.50 and the 100/200-day moving averages. Resistance is at $13.50-$13.75.

You can read my full update on JDSU in the Dec. 3 Alert.


Diamond Foods (DMND, $29.44, down $0.21)

DMND December 32 calls (DMND141220C00032000, $0.60, flat)

Entry Price: $0.87 (11/18/2014)

Exit Target: $1.75

Return: -31%

Stop Target: None

Action: Near-term resistance is at $30.50. Earnings are due out on Monday, Dec. 8, after the close.

You can read my detailed write-up on DMND in the Nov. 19 Mid-Market Update.


IMAX (IMAX, $30.38, down $0.45)

IMAX December 32 calls (IMAX1220C00032000, $0.25, down $0.10)

Entry Price: $0.35 (11/12/2014)

Exit Target: $0.70 (Limit Order on Half)

Return: -30%

Stop Target: None

Action: Support is at $30. Resistance is at $31.50-$32.


International Business Machines (IBM, $164.21, down $0.31)

IBM January 170 calls (IBM150117C00170000, $1.10, flat)

Entry Price: $1.75 (11/10/2014)

Exit Target: $3.50

Return: -37%

Stop Target: $0.50

Action: Resistance is at $163.50. Support is at $160.

You can read more about why I like this trade and its risk/reward setup in the Nov. 11 Pre-Market Update.


Flextronics (FLEX, $11.30, up $0.06)

FLEX January 11 calls (FLEX150117C00011000, $0.55, flat)

Entry Price: $0.68 (9/5/2014)

Exit Target: $1.25

Return: -18%

Stop Target: None

Action: Resistance is at $11.25-$11.50, and a close above the latter should get the 52-week high of $11.83 in play. Support is at $10.75, with backup at $10.50 and the 100-day moving average.


Trades on Hold — other 2014 Portfolio Open positions (2): These are trades that are still open in the portfolio but are down over 50%. They have longer expiration dates and are on “hold” but are not worth mentioning until they turn around. This means I would not open any new positions. I’m still keeping track of the trades and will record the results accordingly when the trade closes or if the options expire. Click on the Open Trades and Closed Trades pages to see all open and closed positions.

Rubicon December 8 calls (From August 2014) — Continue to hold.

Fortinet December 29 calls (from September 2014) — Continue to hold.

Trade on!

Rick Rouse
Editor and Chief Options Strategist
Momentum Options