Dear Momentum Options Subscriber,
Shares of Krispy Kreme Doughnuts (KKD, $19.40, up $2.00) are zooming 11% following the release of a better-than-expected earnings report. The company reported a profit of $0.24 a share on revenue north of $132 million. Wall Street was looking for $0.22 a share on sales of $136 million.
Although I was bearish going into the earnings announcement, I said that the company would be under pressure to deliver solid results. The revenue miss wasn’t impressive, as that metric missed expectations, but shares are soaring on the news.
I wasn’t bullish enough to go long the stock or purchase call options because I was firm on my belief that revenue would miss. I have talked about the cat-and-mouse game the company plays with Wall Street, and it did it again with its forward guidance.
The company “raised” its 2016 earnings estimates from $0.79-$0.85 a share to $0.80-$0.85 a share. Analysts took the bait-and-switch.
I mentioned that a run to $18-$20 could come on short-covering and surprising results, and shares have traded to a high of $20.38 today. While I could have used call options or a strangle option trade to play the move, I decided to sit on the sidelines, as something smelled fishy.
The KKD June 18 calls (KKD150619C00018000, $1.30, up $0.82) are zooming 170% on the stock’s move and have traded to a high of $2.20 today. They closed Wednesday’s session at $0.48.
Now that the news is out, if shares hold $20, we will get a great opportunity over the few weeks to possibly go short with put options, but now is not the time.
The Dow is currently up 53 points to 18,053, while the S&P 500 is higher by 4 points to 2,109. The Nasdaq is gaining 4 points to 5,080, and the Russell 2000 is down by half of a point to 1,266.
I have updated our Rite Aid (RAD) trades with Stop Limits below, along with some other important tidbits.
Momentum Options Play List
Closed Momentum Options Trades for 2015: 59-19-1 (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 1:30 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, $15.27, up $0.05)
RMBS July 16 calls (RMBS150717C00016000, $0.38, up $0.05)
Entry Price: $0.30 (6/10/2015)
Exit Target: $0.60-$0.90
Stop Target: None
RMBS August 16 calls (RMBS150821C00016000, $0.73, up $0.08)
Entry Price: $0.60 (6/10/2015)
Exit Target: $1.20
Stop Target: None
Action: Shares have traded to a 52-week high of $15.49 today. Multi-year resistance is at $15.75-$16. Support is at $15-$14.75, with risk to $14.50.
Rite Aid (RAD, $8.90, up $0.26)
RAD July 8 calls (RAD150717C00008000, $1.00, up $0.20)
Entry Price: $0.65 (6/9/2015)
Exit Target: $1.30 (closed 1/3 @ $1.00 on 6/11/15)
Stop Target: $0.80 (Stop Limit)
RAD October 9 calls (RAD151016C00009000, $0.80, up $0.10)
Entry Price: $0.55 (6/9/2015)
Exit Target: $1.10 (closed 1/3 @ $0.80 on 6/11/15)
Stop Target: $0.60 (Stop Limit)
Action: Set a Stop Limit at $0.80 on the RAD July 8 calls on the remaining two-thirds of the trade.
Also, set a Stop Limit at $0.60 on the RAD October 9 calls on the remaining two-thirds of the trade.
Shares got an upgrade from Credit Suisse this morning with a Price Target of $10. The reinstatement of coverage was made due to Rite Aid’s “high M&A potential.”
Credit Suisse seems to have followed my lead, but I wanted to take partial profits on today’s 3% pop in the common stock. I was planning to take partial profits on a push past $9, but today’s run to $8.94 was close enough. I have also put Stop Limits in place in case the trade becomes “crowded.”
Resistance is at $9. Support has moved up to $8.75-$8.50.
You can read my detailed write-up on RAD in the June 10 Pre-Market Update.
Wells Fargo (WFC, $57.48, up $0.27)
WFC July 60 calls (WFC150717C00060000, $0.27, up $0.02)
Entry Price: $0.20 (6/5/2015)
Exit Target: $0.50
Stop Target: None
Action: Shares have tested yesterday’s 52-week and all-time high of $57.57. The breakout into blue-sky territory is showing a run to $60 could be coming once $58 clears. Fresh support has moved up to $57-$56.50.
Rigel Pharmaceuticals (RIGL, $3.50, down $0.16)
RIGL September 5 calls (RIGL150918C00005000, $0.45, down $0.05)
Entry Price: $0.40 (6/4/2015)
Exit Target: $0.80
Stop Target: None
Action: Support is at $3.50, followed by $3.30-$3.25 and the 100-day moving average. Resistance is at $3.75-$4.
You can read my detailed write-up on RIGL in the June 5 Pre-Market Update.
Dot Hill Systems (HILL, $7.44, up $0.03)
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, $1.20, flat)
Entry Price: $0.80 (5/21/2015)
Exit Target: $1.60
Stop Target: $0.85 (Stop Limit)
Action: Resistance is at $7.50-$7.75. Support is at $7.25-$7.
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, $126.15, up $0.17)
IWM June 128 calls (IWM150619C00128000, $0.34, flat)
Entry Price: $0.70 (5/20/2015)
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.
Sony (SNE) July 33 calls (from June 2015) — Continue to hold.
Editor and Chief Options Strategist