Dear Momentum Options Subscriber,
The recent seesaw battle between the bulls and bears continued on Thursday as both sides tried to make strides to clear support and resistance. Given the economic news, it was no surprise that a backtest to support might come. The bears will be looking for some follow-through, while the bulls will be gunning for a rebound.
The Dow dropped 170 points, or 0.9%, to finish at 17,905. The blue-chips opened lower before making a run into positive territory to reach a high of 18,087. Resistance at 18,100 held before a steady decline into the second half of trading. Support at 17,900 and the 100-day moving average was stretched following the dip to 17,876. There is additional support at 17,600 and the 200-day moving average on a break below 17,800.
The S&P 500 sank 18 points, or 0.9%, to end at 2,095. The index traded in negative territory throughout the session and reached an intraday low of 2,093. The close below support at 2,100 and the 50-day moving average was slightly bearish, as it keeps risk open to 2,080-2,075 and the 100-day moving average. Resistance is at 2,100-2,115.
The Nasdaq tanked 40 points, or 0.8%, to settle at 5,059. Tech traded past resistance at 5,100 to 5,101 shortly after the open before testing a low of 5,046 intraday. Near-term support at 5,050 was challenged, with risk to 5,000 and the 50-day moving average on continued weakness.
The Russell 2000 stumbled 13 points, or 1.1%, to close at 1,251. The small-caps were weak from start to finish, as the bears pushed a low of 1,248. Support at 1,240 has held for 15 of the past 16 sessions, and a close below this level could lead to 1,225. Resistance remains at 1,260.
The S&P 500 Volatility Index ($VIX, 14.71, up 1.05) spiked to a high of 15.49 intraday and appeared destined to make its first close above 15 since May 7. However, a dramatic spike lower into the closing bell kept the streak alive. It was a small moral victory for the bulls, but there is still risk to 17.50 if 15 fails to hold.
I have a detailed write-up for our latest trade in Rigel Pharmaceuticals (RIGL), as well as a Profit Alert on our Limelight Networks (LLNW) trade. It’s almost show time, so I could have additional Profit Alerts and/or New Trades shortly after the open.
From desk to press, futures look like this: Dow (-58); S&P 500 (-7); Nasdaq 100 (-17).
Momentum Options Play List
Closed Momentum Options Trades for 2015: 56-18-1 (75%). 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 8:30 a.m. EST.
I hereby disclose that I will be participating in the following trade(s). 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.
Rigel Pharmaceuticals (RIGL, $3.58, down $0.10)
RIGL September 5 calls (RIGL150918C00005000, $0.46, up $0.01)
Entry Price: $0.40 (6/4/2015)
Exit Target: $0.80
Stop Target: None
Action: Support is at $3.30-$3.25 and the 100-day moving average. Resistance is at $3.75, followed by $4 and the 50-day moving average.
Rigel Pharmaceuticals has a partnership with Bristol-Myers Squibb (BMY), and the recent approval of lung cancer drug, Opdivo, was a big bonus.
Obviously, Bristol-Myers is the better-known company, but Rigel could be the better way to play the potential of a billion-dollar drug.
The niche lung cancer treatment Opdivo is expected to compete in a $3 billion-per-year drug market category.
Rigel also has a partnership with AstraZeneca for the development of an asthma drug and recently received a “milestone” payment of nearly $6 million.
Rigel has five other drugs in development stages in their pipeline and forms “collaborations” with other companies to bring their drugs to market. In other words, think of Rigel as the “brains” behind a drug, while its partners do the legwork and heavy lifting.
The company business model is setup to earn money through layered royalties. Said another way, the better a drug does in sales, the bigger their slice of that pie will be based on total revenue.
With quicker-than-expected approval for Opdivo, shares could make a run at $5+ by September. The current market cap for the company is just over $300 billion, and a $1 billion valuation would have shares trading between $10-$11. In other words, a takeover target of $1 billion would get shares into double-digits. I will talk more about M&A activity next week, but Rigel is one of my favorite biotech speculative plays on a takeover target or buyout.
The slick-talking pros say the biotech sector is overvalued and is forming tiny bubbles. While this may be true for the broader sector, an individual stock’s valuation is determined by a number of factors. The general statement of a biotech bubble is a little premature and is a cop-out for the ones who don’t read and research the sector.
Biotech stocks are valued more on their pipeline and potential drug sales. With that said, Rigel offers great risk/reward at current levels.
Limelight Networks (LLNW, $4.10, down $0.13)
LLNW September 4 calls (LLNW150918C00004000, $0.45, down $0.10)
Entry Price: $0.35 (4/29/2015)
Exit Target: $1.00 (Limit Order on half)
Stop Target: $0.45 (Stop Limit)
Action: The Stop Limit of $0.45 triggered on yesterday’s late day dip to $4.05, and we are now out of the position.
I was surprised to see the stop trip on the backtest to $4, but it is what it is. I will likely be back in the trade as early as next week, as the options are still a “cheap” way to play a move to $5-$6 by September. Remember, LLNW received a takeover north of $6 last summer, and the CDN (content delivery network) space will remain a hot sector for years to come.
Sony (SNE, $30.02, down $0.41)
SNE July 33 calls (SNE150717C00033000, $0.25, down $0.15)
Entry Price: $0.45 (6/1/2015)
Exit Target: $0.90
Stop Target: None
Action: Shaky support is at $30. Resistance is at $31.50. These are longer-term options, so I’m not too worried about a possible backtest to $28 and the 100-day moving average.
The close below the 50-day moving average was slightly bearish and could lead to additional weakness. However, I plan to hold these options into July, as shares can make tremendous upside moves.
Rambus (RMBS, $15.26, down $0.04)
RMBS July 15 calls (RMBS150717C00015000, $0.85, flat)
Entry Price: $0.50 (5/27/2015)
Exit Target: $1.30 (Limit Order on half)
Stop Target: $0.65 (Stop Limit)
RMBS August 16 calls (RMBS150821C00016000, $0.70, flat)
Entry Price: $0.43 (5/27/2015)
Exit Target: $0.90
Stop Target: $0.55 (Stop Limit)
Action: Near-term support is at $15, and a dip below $14.75 will likely trigger the Stop Limits. Resistance is at $15.50.
Dot Hill Systems (HILL, $7.49, up $0.30)
HILL September 7.50 calls (HILL150918C00007500, $0.80, up $0.15)
Entry Price: $0.55 (5/21/2015)
Exit Target: $1.10
Stop Target: $0.57 (Stop Limit)
HILL December 7.50 calls (HILL151218C00007500, $1.00, up $0.05)
Entry Price: $0.80 (5/21/2015)
Exit Target: $1.60
Stop Target: $0.85 (Stop Limit)
Action: Shares traded to a fresh 52-week high of $7.50 in a lousy market on Thursday. Resistance is at $7.50-$7.75 on the move above $7.25. A run to $8-$10 appears to be in the works. Support is at $7.25-$7.
iShares Russell 2000 (IWM, $124.50, down $1.26)
IWM June 128 calls (IWM150619C00128000, $0.31, down $0.24)
Entry Price: $0.70 (5/19/2015)
Exit Target: $0.90 (Limit Order)
Stop Target: None
Action: Short-term support is at $124, followed by $123 and the 50-day moving average. Resistance is at $126-$127.
Trades on Hold — other 2015 Portfolio Open positions (1): 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.
BlackBerry (BBRY) June 13 calls (from March 2015) — This is a speculation trade from early March on BBRY receiving a takeover offer of $14 or better by mid-June. These options will carry some premium through the first week of June. I would like to be out of this trade by next Friday’s close. This gives the trade until June 10 for Blackberry to get a takeover offer — Continue to hold.
Editor and Chief Options Strategist