Dear Momentum Options Subscriber,

Shares of Yahoo! (YHOO, $40.55, down $0.35) continue to languish and are close to taking out their 2015 and mid-May low of $39.12. The one-year chart shows a break below $39 could lead to a further backtest to $38-$36.

YHOO

The stock came into the year just north of $50, and the 20% discount looks tempting to start nibbling, but there is still risk involved.

This week’s continued pullback comes amid talk that the IRS and Treasury Department would unlikely approve the proposed tax-free spinoff of Yahoo’s stake in Alibaba (BABA).

This overhang has dogged the stock for months, and the uncertainty is clearly weighing on shares. Wall Street seems unclear on how big the impact would be on the stock, but a spinoff taxed at 40% would likely knock shares down $10. A favorable ruling could produce a $10 move the other way.

At current levels, and with the spinoff expected during the fourth quarter, my guess is that shares will either be testing $50 or pushing $30 by the end of 2015.

The longer-term options look enticing to play this possible move over the next six months, so I started doing some digging.

The YHOO January (2016) 45 calls (YHOO160115C00045000, $1.95, down $0.10) and the YHOO January (2016) 35 puts (YHOO160115P00035000, $1.30, up $0.10) could be used to create a strangle option trade, which would do well of shares do trade to $50 or test $30 by mid-January of 2016.

I might look to go long if shares do hold $40 today and next week for a possible rebound to $42-$44. The YHOO July 42 calls (YHOO150717C00042000, $0.80, down $0.15) could be used if support holds.

If shares fall below $40, the YHOO July 39 puts (YHOO150717P00039000, $0.67, up $0.03) could be used to play further weakness.

Turning our attention to the market, the Dow is down 154 points to 17,885, while the S&P 500 is lower by 14 points to 2,094. The Nasdaq is off 26 points to 5,056, and the Russell 2000 is declining 3 points to 1,265.

I have updated our current trades, so let’s go check the tape. I could have another update ahead of the close, but, if you don’t hear from me, have a great weekend.

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 1:00 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.

 

iShares Russell 2000 (IWM, $125.81, down $0.50)

IWM June 128 calls (IWM150619C00128000, $0.26, down $0.10)

Entry Price: $0.70 (5/20/2015)

Exit Target: $0.90 (Limit Order)

Return: -63%

Stop Target: None

Action: Sell to close the IWM June 128 calls at current levels. I was looking to see continued strength today, but, with the pullback, I want to preserve the remaining capital. These options expire next Friday, and the time premium left in the trade will start to quickly evaporate on Monday.

 

United Parcel Service (UPS, $100.05, down $0.95)

UPS July 105 calls (UPS150717C00105000, $0.43, down $0.11)

Entry Price: $0.53 (6/11/2015)

Exit Target: $1.05

Return: -19%

Stop Target: None

 

UPS October 110 calls (UPS151016C00110000, $0.63, down $0.09)

Entry Price: $0.70 (6/11/2015)

Exit Target: $1.40

Return: -7%

Stop Target: None

Action: Near-term risk is at $100-$99 and the 50- and 100-day moving averages on a pullback. Resistance is at $101.

 

Rambus (RMBS, $15.20, down $0.21)

RMBS July 16 calls (RMBS150717C00016000, $0.40, down $0.06)

Entry Price: $0.30 (6/10/2015)

Exit Target: $0.60-$0.90

Return: 33%

Stop Target: None

 

RMBS August 16 calls (RMBS150821C00016000, $0.71, down $0.10)

Entry Price: $0.60 (6/10/2015)

Exit Target: $1.20

Return: 18%

Stop Target: None

Action: Multi-year resistance is at $15.75-$16. Support is at $15-$14.75, with risk to $14.50.

 

Rite Aid (RAD, $8.98, up $0.02)

RAD July 8 calls (RAD150717C00008000, $1.00, flat)

Entry Price: $0.65 (6/9/2015)

Exit Target: $1.30 (closed 1/3 @ $1.00 on 6/11/15)

Return: 54%

Stop Target: $0.80 (Stop Limit)

 

RAD October 9 calls (RAD151016C00009000, $0.80, flat)

Entry Price: $0.55 (6/9/2015)

Exit Target: $1.10 (closed 1/3 @ $0.80 on 6/11/15)

Return: 45%

Stop Target: $0.60 (Stop Limit)

Action: Resistance is $9.25-$9.50. Support is at $8.75.

You can read my detailed write-up on RAD in the June 10 Pre-Market Update. We closed a third of both positions on June 11.

 

Wells Fargo (WFC, $56.81, down $0.45)

WFC July 60 calls (WFC150717C00060000, $0.20, down $0.04)

Entry Price: $0.20 (6/5/2015)

Exit Target: $0.50

Return: 0%

Stop Target: None

Action: Support is at $56.50-$56. Resistance is at $57-$57.50.

 

Rigel Pharmaceuticals (RIGL, $3.50, down $0.01)

RIGL September 5 calls (RIGL150918C00005000, $0.45, flat)

Entry Price: $0.40 (6/4/2015)

Exit Target: $0.80

Return: 13%

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.

 

Sony (SNE, $30.46, down $0.05)

SNE July 33 calls (SNE150717C00033000, $0.25, flat)

Entry Price: $0.45(6/1/2015)

Exit Target: $0.90

Return: -44%

Stop Target: None

Action: Near-term resistance is at $30.75-$31 and the 50-day moving average. Support is at $29-$28 and the 100-day moving average on another drop below $30.

 

Dot Hill Systems (HILL, $7.35, down $0.05)

HILL September 7.50 calls (HILL150918C00007500, $0.80, flat)

Entry Price: $0.55 (5/21/2015)

Exit Target: $1.10

Return: 45%

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

Return: 50%

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.

Trade on!

Rick Rouse
Editor and Chief Options Strategist
Momentum Options