Dear Momentum Options Subscriber,
I profiled El Pollo Loco Holdings (LOCO, $14.76, down $3.60) in the Aug. 12 Mid-Market Update, and shares are down 20% today following a mixed earnings report that was released after Thursday’s close. The company beat expectations by a penny, but revenue was light, and the company lowered guidance for the current quarter once again.
I mentioned in my previous comments that shares could struggle if earnings did not post a top- and bottom-line beat, but the outlook given by the company was what sent shares tumbling.
The LOCO August 17 puts (LOCO150821P00017000, $2.00, up $1.55) were trading for $0.55 on Wednesday, and they are up a stunning 350% this afternoon. The puts have traded to a high of $2.30. This was not an official recommendation, but, if you did take the trade, I would suggest locking in profits, as these options expire next week.
The strangle option trade was also successful despite the loss in the LOCO August 19 calls (LOCO150821C00019000, $0.05, down $0.65).
The aforementioned call and put options would have created a strangle option trade with a combined premium of approximately $1.00, and I said that the overall trade would double if shares were above $20 or below $16. Shares are currently below the $15 level. Bingo!
The tight end-of-week action is making both bullish and bearish cases for the market to go either higher or lower next week.
The cross-current winds have been strong this week, with most professional and amateur traders taking bearish stances. However, the bulls continue to show their resiliency, and I’m hoping that today’s close will provide the clues as to the potential for an end-of-summer rally that might still be in the cards.
The suits-and-ties usually spend the second half of August on vacation because they think they deserve it. As we have seen in recent years, this has served us well, as I’m always working and have made good profits betting on a trend while Wall Street has been away over the years.
We have nibbled on bullish positions this week, and we have set a Stop Limit on our KB Home (KBH) trade to protect profits. The trading environment is still tricky, but next week will be less stressful if it turns out that today is the start of a rebound rally.
In afternoon trading, the Dow is gaining 49 points to 17,457, while the S&P 500 is higher by 4 points to 2,087. The Nasdaq is declining 3 points to 5,030, and the Russell 2000 is up less than a point to 1,204.
I have updated our current trades below, so let’s go check on the action. I could have a New Trade ahead of today’s close, but, if you don’t hear from me, have a great weekend, and I will be back on Monday morning with a full update.
Momentum Options Play List
Closed Momentum Options Trades for 2015: 79-26-2 (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 12:40 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, $110.26, down $0.08)
QQQ September 112 Weekly calls (QQQ150904C00112000, $0.65, down $0.12)
Entry Price: $0.95 (8/13/2015)
Exit Target: $1.90
Stop Target: None
Action: Support is at $110 and the 50-day average on a continued pullback. Backup support is at $108. Resistance is at $112.
JPMorgan Chase (JPM, $67.63, up $0.08)
JPM September 70 calls (JPM150918C00070000, $0.53, down $0.04)
Entry Price: $0.80 (8/10/2015)
Exit Target: $1.60
Stop Target: None
Action: Resistance is at $68 and the 50-day moving average. Support is at $66 and the 100-day moving average.
KB Home (KBH, $15.53, flat)
KBH October 16 calls (KBH151016C00016000, $0.75, flat)
Entry Price: $0.52 (8/10/2015)
Exit Target: $1.05
Stop Target: $0.55 (Stop Limit)
Action: Resistance is at $15.50-$15.75 and the 50- and 100-day moving averages. Support is at $15-$14.75.
You can read my detailed write-up on KBH in the Aug. 12 Pre-Market Update.
Trades on Hold — other 2015 Portfolio Open positions (2): 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) — Continue to hold.
SPDR Gold Trust ETF (GLD) September 98 puts (from 7/28/15) — I will be covering the technical picture for gold and silver on Monday morning — Continue to hold.
Editor and Chief Options Strategist