Dear Momentum Options Subscriber,
Although the majority of the bigger, more well-known companies have already reported their quarterly earnings, there are a number of iconic brands that will be confessing their numbers to Wall Street this week. One such company is luxury apparel-maker Coach (COH, $30.08, down $1.12), which will announce its fourth-quarter results before Tuesday’s open.
Shares have fallen on hard times recently, as they are down from a 52-week peak just south of $44 and a 2012 high north of $72. The recent 52-week low of $30.13 tripped last Monday, but shares have traded to a fresh low of $29.95 today. To say this will be an important quarter for the company would be an understatement, as an earnings miss might send shares sinking into the mid-$20s.
The suits-and-ties are expecting Coach to earn $0.30 a share on revenue just under $974 million. The company beat estimates by a penny last quarter and has topped expectations in four-straight quarters. The previous three earnings beats were by $0.06, $0.08, and $0.06, respectively.
Despite the impressive earnings beats, analysts were bearish on Coach last month.
There were three downgrades and two “Neutral” ratings placed on Coach in July. Last week, BMO Capital cut its price target on Coach from $37 down to $28, as it sees a continuation of the weak handbag market. In the prior week, Stifel lowered its price target from $47 to $40 on concerns that competition in the accessories market is increasing. Another brokerage house cut its rating and downgraded the stock to “Negative” from “Mixed.”
One “Neutral” rating came out of UBS, as it reiterated its stance on Coach shares while lowering its price target from $40 to $34. The other “Neutral” rating was actually an upgrade from “Underperform,” but the brokerage firm’s price target was reduced from $32 to $30.
There were also two upwards earnings revisions last month on Coach, so there is a slight chance that they top expectations. However, I always say that revenue numbers are more important than the earnings numbers and, on that front, the company has disappointed.
The company missed sales projections by $20 million last quarter and, in January, it missed expectations following the Christmas shopping season. Coach topped forecasts last October and last August.
As you can see, predicting how earnings will come in may be a crapshoot. An earnings surprise could lead to a rebound and a surge to $32-$33. Lowered guidance or an earnings shortfall could have shares testing $28-$27.
The option pits will likely be active heading into the announcement. The implied volatility for the August options is quite high, meaning that they are expensive.
The COH August 32 weekly calls (COH150807C00032000) are currently trading for $0.65 (down $0.45) and expire this Friday. Shares will need to trade above $32.65, technically, for the trade to breakeven. If shares clear $33, these options could come close to doubling.
The COH August 28 weekly puts (COH150807P00028000) are currently trading for $0.55 (up $0.22). Shares will need to trade down to $27.45, technically, by this Friday, for the trade to breakeven. If shares fall below $27, these options would double, as they would be at least $1.00 in the money.
The regular COH August 33 calls (COH150821C00033000) are trading near $0.50 and would give the trade more time to play out. The breakeven point would be $33.50, and they could double if shares clear $34.
The regular COH August 28 puts (COH150821P00028000) are pushing $0.70. The breakeven point would be $27.30, and they could double if shares trade down to $26.60.
Given the risk/reward setup, I will be passing on Coach’s earnings. We may be able to play the aftermath once earnings are released and shares settle or stabilize.
It’s been another blue Monday for the bulls, as they have struggled to gain momentum today. Although there has been a push into positive territory, the indexes are mixed in afternoon trading.
The Dow is currently down 77 points to 17,612, while the S&P 500 is off 2 points to 2,102. The Nasdaq is higher by 2 points to 5,130, and the Russell 2000 is declining 4 points to 1,234. The VIX is at 12.51.
I have updated our current trades below, so let’s go check the action. Also, stay close to your email inboxes and look out for a text alert in case I decide to take action ahead of today’s close.
Momentum Options Play List
Closed Momentum Options Trades for 2015: 76-25-2 (74%). 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 12:05 p.m. EST.
I hereby disclose that I will be participating in the following trade(s). Every 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 portfolio.
PowerShares QQQ Trust (QQQ, $112.08, up $0.13)
QQQ August 110 puts (QQQ150821P00110000, $0.72, up $0.02)
Entry Price: $0.72 (7/30/2015)
Exit Target: $1.45
Stop Target: None
Action: Support is at $110, and the 50-day moving average is back in play. Near-term resistance is at $113-$114.
SPDR Gold Trust ETF (GLD, $104.63, down $0.30)
GLD September 98 puts (GLD150918P00098000, $0.62, flat)
Entry Price: $0.82 (7/28/2015)
Exit Target: $1.65
Stop Target: None
Action: Resistance is at $106, and I like the trade as long as $108 holds. A move below $104-$103.50 should get $100 and below in play. The major moving averages are still sloping lower and show no signs of leveling out.
United Parcel Service (UPS, $102.47, up $0.11)
UPS October 110 calls (UPS151018C00110000, $0.35, down $0.05)
Entry Price: $0.70 (6/11/2015)
Exit Target: $0.70+
Stop Target: $0.20 (Stop Limit)
Action: Resistance is at $103-$105. A move above the latter should get the trade back to even or better. Support has moved up to $102-$101 and the 200-day moving average. There is additional help at $100-$99 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.
Rigel Pharmaceuticals (RIGL) September 5 calls (from 6/4/15) — Support is at $2.90 and the 200-day moving average, with additional risk to $2.75-$2.70. Resistance is at $3, followed by $3.25 and the 50-day moving average. These options still have plenty of time premium, but we need shares to break out of their trading range this month — Continue to hold.
Editor and Chief Options Strategist