Dear Momentum Options Subscriber,
I have covered Krispy Kreme Doughnuts’ (KKD, $17.31, up $0.20) story throughout 2015 and, for the past few years, I have been bearish on the stock.
The company will announce earnings after Wednesday’s close. Wall Street is looking for a profit of $0.22 a share on revenue of $136 million.
In March, KKD matched analysts’ expectations of $0.17 a share but missed on revenue. In the previous two quarters, the company missed estimates by a $0.01 and $0.03, respectively. In the year-ago quarter, the company matched forecasts. On the $0.03 miss, revenues beat expectations.
KKD hasn’t had a blowout quarter in over a year, but Wall Street brokerage firms have three “Strong Buys” and three “Buy” ratings on the stock. A “strong” quarter with raised guidance might have the suits-and-ties pounding the table and reiterating their love and bullishness for Krispy Kreme. It could also send short-sellers scrambling if shares push $19-$20.
An earnings miss along with lowered guidance, however, could validate my personal price target, which is in the mid- to low-teens for the stock.
I think the company needs to have solid back-to-back quarters before opening new stores. To this respect, I have also talked about the cat-and-mouse game it has played with Wall Street by lowering its range guidance over the past year.
As far as the technical outlook, shares have been in a tight range of $17-$17.50 since mid-May. This usually translates into a massive move for a stock. A 10%+ move from current levels would have shares pushing $19 or testing $15.
I have recommended two put options trades on KKD this year that generated gains of 100% and 47%, respectively. Although earnings trades are tricky, I’m considering going back to the well for another put option trade.
I use both technical and fundamental analysis for all of our Momentum Options trades. This helps me get a better picture for an option (or stock) trade. Although volatility is elevated going into the earnings announcement, I have found a great risk/reward setup to play a possible test to $15.
The KKD July 16 puts (KKD150717P00016000, $0.40 down $0.05) would easily double and could return 100%-150% if shares test $15. The options would be “in the money” by $1.00 if KKD trades down to $15.
The KKD August 16 puts (KKD150821P00016000, $0.55, down $0.05) also look tempting and would allow even more time to play a possible drop below $15.
The KKD June 16 puts (KKD150619C00016000, $0.25, down $0.05) also look tempting, but these options expire next Friday. If KKD says good things about its doughnuts, shares could rebound to push the upper-teens. If so, these options will get crushed and would likely expire worthless.
The aforementioned July and August put options would still take a hit if shares clear their major moving averages and test $19-$20. However, there would still be some time premium left, so the losses would be less and the position could be left “open.”
If shares do test resistance on good news, the longer-term options could still be left open to see if the rebound fades.
These aren’t official recommendations yet, but I wanted to share my thoughts on some of the trades I’m looking at this week.
As we make the turn into the afternoon, the Dow is down 53 points to 17,795, while the S&P 500 is lower by 8 points to 2,084. The Nasdaq is off 35 points to 5,032, and the Russell 2000 is declining 3 points to 1,258.
The Stop Limit has triggered in one of our Rambus (RMBS) trades, and I’m also closing our older trade in Blackberry (BBRY) that has been on hold, so let’s go check the action.
Momentum Options Play List
Closed Momentum Options Trades for 2015: 57-18-1 (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 12:50 p.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.
Rambus (RMBS, $15.06, down $0.14)
RMBS July 15 calls (RMBS150717C00015000, $0.65, down $0.20)
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, $0.60, down $0.10)
Entry Price: $0.43 (5/27/2015)
Exit Target: $0.90
Stop Target: $0.55 (Stop Limit)
Action: The $0.65 Stop Limit on the RMBS July 15 calls has triggered, and we are now out of the trade.
The RMBS August 16 calls have traded down to $0.57, but we are still holding them open in the portfolio.
Support is at $15, and further weakness into the close could knock us out of our remaining position in the RMBS August 16 calls.
Wells Fargo (WFC, $56.49, down $0.12)
WFC July 60 calls (WFC150717C00060000, $0.19, down $0.02)
Entry Price: $0.20 (6/5/2015)
Exit Target: $0.50
Stop Target: None
Action: Near-term support is at $56.50, with risk to $56-$55.50. A near-term run to $58.50-$59 looks good on a move past $57.
Rigel Pharmaceuticals (RIGL, $3.65, down $0.03)
RIGL September 5 calls (RIGL150918C00005000, $0.50, down $0.05)
Entry Price: $0.40 (6/4/2015)
Exit Target: $0.80
Stop Target: None
Action: Resistance is at $3.75, followed by $4 and the 50-day moving average. Fresh support is at $3.50, followed by $3.30-$3.25 and the 100-day moving average.
You can read my detailed write-up on RIGL in the June 5 Pre-Market Update.
Sony (SNE, $29.27, down $0.78)
SNE July 33 calls (SNE150717C00033000, $0.20, down $0.05)
Entry Price: $0.45 (6/1/2015)
Exit Target: $0.90
Stop Target: None
Action: There is risk to $28 and the 100-day moving average on today’s drop below $30.
Dot Hill Systems (HILL, $7.35, down $0.08)
HILL September 7.50 calls (HILL150918C00007500, $0.80, flat)
Entry Price: $0.55 (5/21/2015)
Exit Target: $1.10
Stop Target: $0.57 (Stop Limit)
HILL December 7.50 calls (HILL151218C00007500, $1.15, flat)
Entry Price: $0.80 (5/21/2015)
Exit Target: $1.60
Stop Target: $0.85 (Stop Limit)
Action: Support is at $7.25-$7. Resistance is at $7.50-$7.75.
You can read my full update on HILL and check out its 15-year chart in the May 22 Pre-Market Update.
iShares Russell 2000 (IWM, $125.20, down $0.20)
IWM June 128 calls (IWM150619C00128000, $0.35, down $0.05)
Entry Price: $0.70 (5/19/2015)
Exit Target: $0.90 (Limit Order)
Stop Target: None
Action: Resistance is at $126-$127. Short-term support is at $124 and the 50-day moving average.
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) — Sell to close the BBRY June 13 calls at current levels. There is no need to wait until Friday given today’s drop in the common stock to $9.50.
Editor and Chief Options Strategist