Dear Momentum Options Subscriber,
Shares of Smith & Wesson Holding Corp. (SWHC, $16.21, up $0.26) will be on the move in extended trading today following the company’s earnings release after the close.
Wall Street has forecasted a profit of $0.22 a share on revenue north of $142 million. The company has topped estimates in the last four quarters by $0.05 twice, $0.02 and $0.01, respectively, and shares tend to make large price movements after earnings.
Bullish traders could target the SWHC September 17 calls (SWHC150918C00017000, $0.50, up $0.07) for a short-term trade and a possible run to $18.
Bearish traders could use the SWHC September 15 puts (SWHC150918P00015000, $0.50, down $0.10) for a possible test to $14 on an earnings miss or lowered guidance.
I don’t actively follow the stock, so I’m neither bullish or bearish at this time. However, playing both options would create a “strangle” trade that would eliminate the risk of a directional bet on which way shares will move following earnings.
I have a feeling shares that could move 15%-20% following the announcement given the current volatility. If so, the aforementioned strangle option trade could work well. However, if shares move less than 10%, one or both sides of the trade could struggle.
I will likely sit on the sidelines with Smith & Wesson, as there are other trades I like better.
Heading into afternoon trading, the Dow is up 279 points to 16,564, while the S&P 500 is adding 37 points to 1,978. The Nasdaq is higher by 94 points to 4,791, and the Russell 2000 is gaining 15 points to 1,147.
I have a New Trade for us listed below, so let’s get to it.
Momentum Options Play List
Closed Momentum Options Trades for 2015: 83-28-2 (73%). 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 11:20 a.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.
KB Home (KBH, $14.31, up $0.37)
Buy to open the KBH October 16 calls (KBH151016C00016000, $0.33, up $0.05) at current levels.
Action: I like these call options at current levels.
These are the regular monthly options that expire on Oct. 16, and I will provide the parameters of the trade in tomorrow’s Pre-Market Update.
Trades on Hold — other 2015 Portfolio Open positions (4): 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.
Bank of America (BAC) September 18 calls (from 8/17/15) — Continue to hold.
JPMorgan Chase (JPM) September 70 calls (from 8/10/2015) — Continue to hold.
iShares Russell 2000 (IWM) September 123 calls (from 8/19/2015) — Continue to hold.
Editor and Chief Options Strategist