Dear Momentum Options Subscriber,

Next week is the official start of third-quarter earnings season, but there are a few noteworthy companies with offbeat fiscal years that are scheduled to report their numbers this week instead. One of them is spice-maker McCormick & Company (MKC, $80.68, down $0.82), which is scheduled to announce earnings on Thursday, Oct. 1, before the market opens.

The company has been crushing Wall Street’s forecasts lately, as it has beaten expectations over the past four quarters by $0.07, $0.06, $0.02 and $0.14, respectively. However, revenue of $1.02 billion was light in the previous quarter versus estimates for $1.04 billion. Overall, revenues have missed expectations in two of the previous four quarters.

Current estimates have the company earning $0.87 a share on revenue of $1.06 billion. Shares started the year at $74.30 and traded to a 52-week high of $85.30 in mid-August. The 52-week low is north of $65.

Given the current market conditions, McCormick is going to have to beat on both the top and bottom lines if shares are going to move higher. A raised outlook for 2016 would also be a bonus. However, if the company lowers guidance going forward, shares could suffer despite an earnings beat.

On a technical level, shares closed below their 50-day moving average on Monday. A break below $80 and the 100-day moving average might be a signal to go “short.” While there is additional support at $77 and the 200-day moving average, longer- term support from March, February and last December is at $72, which is 10% away to the downside. A 10% move higher would put shares north of $88 at fresh 52-week peaks.

 

There are several ways traders could play a possible 7%-10% move in the stock by using options. A bullish directional trade seems a bit risky because a lot has to go right for shares to surge to new highs. However, McCormick has been a strong stock for years, so it is not easy to say they won’t beat expectations.

The MKC October 85 calls (MKC151016C00085000, $0.65, down $0.40) look tempting, but open interest is low, and the bid/ask spread is ridiculous.

The MKC October 75 puts (MKC151016P00075000, $0.55, up $0.25) could be targeted for a bearish trade, but the bid/ask on these options is also wide, and open interest is low here as well.

Usually, if I take an earnings trade, I look for high open interest and tight bid/ask spreads of a nickel or less. This shows that there is more liquidity, which makes it easier to get into and out of the trade.

Given the circumstances with MKC and the options, traders might want to go long or short MKC common stock. Average daily volume in the stock is above 800,000.

I will likely be sitting on the sidelines when MKC reports, but I decided to do the research to see if there was an option trade for us in the name.

As far as the market this afternoon, the bears pushed fresh September lows shortly after the open, but the bulls have since responded. Of course, there is still another half of trading to go, and today’s close will be important.

The Dow is currently up 12 points to 16,014, while the S&P 500 is gaining 4 points to 1,886. The Nasdaq is adding 10 points to 4,554, and the Russell 2000 is higher by a point to 1,091.

I have updated our current trades below, so let’s go check the tape.

Momentum Options Play List

Closed Momentum Options Trades for 2015: 85-33-2 (71%). 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 12:10 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.

 

Starbucks (SBUX, $55.95, up $0.18)

SBUX November 50 puts (SBUX151120P00050000, $0.90, flat)

Entry Price: $0.90 (9/28/2015)

Exit Target: $1.80

Return: 0%

Stop Target: None

Action: Near-term support is at $55, followed by $54.50 and the 100-day moving average. Resistance is at $56-$56.25 and the 50-day moving average.

 

Financial Select Sector SPDR (XLF, $22.27, down $0.01)

XLF November 22 puts (XLF151120P00022000, $0.70, up $0.01)

Entry Price: $0.66 (9/24/2015)

Exit Target: $1.35

Return: 6%

Stop Target: None

Action: Support is at $22. A close below this level could lead to $20. Resistance is at $22.50-$22.75.

 

Sony (SNE, $23.55, down $0.50)

SNE October 24 puts (SNE151016P00024000, $1.15, up $0.30)

Entry Price: $0.65 (9/22/2015)

Exit Target: $1.30

Return: 77%

Stop Target: None

Action: Support is at $23.50, followed by $22. The Aug. 25 low reached $21.51. Resistance is at $25.

 

Cisco Systems (CSCO, $25.84, up $0.18)

CSCO November 27 calls (CSCO151120C00027000, $0.51, up $0.04)

Entry Price: $0.62 (9/16/2015)

Exit Target: $1.30

Return: -18%

Stop Target: None

Action: Support is at $25.50, followed by if $25. Resistance is at $26.

 

PayPal Holdings (PYPL, $31.73, down $0.52)

PYPL January (2016) 40 calls (PYPL160115C00040000, $0.50, down $0.07)

Entry Price: $1.05 (9/14/2015)

Exit Target: $2.10

Return: -52%

Stop Target: None

Action: Support is at $31.50. Resistance is at $32.50-$33.

You can read my detailed write-up on PYPL in the Sept. 15 Pre-Market Update.

 

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.

Corning (GLW) November 19 calls (from 9/16/2015) — You can read my take on GLW in the Sept. 17 Pre-Market Update — Continue to hold.

Trade on!

Rick Rouse
Editor and Chief Options Strategist
Momentum Options

P.S. Sale Extended until Midnight, Sept. 30. Now you have one more opportunity to save 60% on your Momentum Options membership. I’m 100% committed to helping you build your wealth. That’s why I’m extending this sale. Some of the best trading opportunities of the year are dead ahead, and I’m expecting to capture plenty of profits. Accept your saving today by clicking here!