Dear Momentum Options Subscriber,
Shares of Netflix (NFLX, $101.52, down $8.71) are down almost 8% today following its earnings announcement last night. The company reported a profit of $0.07 a share on revenue of $1.74 billion. The suits-and-ties were looking for $0.08 a share on revenue of $1.75 billion.
Shares were prone to huge price swings before the mid-July 7-for-1 stock split, and today’s pullback is no different. This was the company’s first quarterly update since the split.
Shares were holding their 50-day moving average just below $109 going into the announcement, but they have since fallen below the second wave of support at $104 and the 100-day moving average. A close below $103.50 could lead to $100-$95 over the near term. Today’s low has touched $99.10.
Netflix also lowered guidance for fourth- and current-quarter earnings from $0.04 to $0.02 per share. Although earnings were light and guidance was trimmed, there were some good nuggets of information.
The company ended the quarter with over 69 million global customers and continues to build out its international base. NFLX is starting to offer original content from other countries from around the world, including Mexico, France, Brazil and Italy.
The company recently increased its pricing power, as new members will now pay $9.99 monthly. The price increase shouldn’t be a big deal to pass on to new members because it still represents an outstanding value.
I would wait until next week to see if the second wave of support holds before possibly buying the stock or trading call options. If the bears hold $103.50 into today’s close, I might use put options to play the near-term weakness.
Momentum stocks have been crushed in recent months, but the beauty of momentum is that it works both ways. In fact, the downside slide on a stock or index can be played with put options or by “shorting” a stock. I often say that the bulls like using the steps to march higher, while the bears like to take the elevator to lower lows.
As far as the market goes, futures were strong throughout the night and into this morning’s open. The first half of the action has pushed prior resistance, but the results don’t count until the closing bell rings. The bulls need to be careful not to pull another second-half fade, while holding fresh support levels into the close.
The Dow is currently up 47 points to 16,972, while the S&P 500 is gaining 7 points to 2,001. The Nasdaq is climbing 22 points to 4,804, and the Russell 2000 is advancing less than a point to 1,137.
I have updated our current trades below, as the pin action continues to improve. I have also placed a Stop Limit order on our Qualcomm (QCOM) trade to protect profits.
Momentum Options Play List
Closed Momentum Options Trades for 2015: 86-34-2 (70%). 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 12:00 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.
General Motors (GM, $33.46, up $0.13)
GM November 34 calls (GM151120C00034000, $0.80, down $0.02)
Entry Price: $0.83 (10/15/2015)
Exit Target: $1.65
Stop Target: None
Action: Shares are on the verge of clearing their 200-day moving average. A move above $33.50 would be bullish for a possible push towards $36. Short-term support is at $33, followed by $32-$31.75 and the 100-day moving average.
Qualcomm (QCOM, $58.77, up $0.14)
QCOM November 60 calls (QCOM151120C00060000, $1.44, flat)
Entry Price: $1.20 (10/9/2015)
Exit Target: $2.40
Stop Target: $1.25 (Stop Limit)
Action: Set a Stop Limit at $1.25.
Resistance is at $60-$60.25. Support has moved up to $58-$57.
Kohl’s (KSS, $44.80, down $0.21)
KSS November 42.50 puts (KSS151120P00042500, $1.12, up $0.07)
Entry Price: $0.95 (10/7/2015)
Exit Target: $1.90
Stop Target: None
Action: A close below $45-$44 should lead to the low $40s. The 52-week low is at $44.04, and yesterday’s low reached $44.58. Resistance is at $46.
You can read my detailed write-up in the Oct. 7 Mid-Market Update. Earnings are due out Nov. 12.
Financial Select Sector SPDR (XLF, $23.19, up $0.30)
XLF November 22 puts (XLF151120P00022000, $0.21, down $0.05)
Entry Price: $0.66 (9/24/2015)
Exit Target: $1.35
Stop Target: None
Action: Support is at $23-$22.50. Resistance is at $23.50.
PayPal Holdings (PYPL, $34.48, up $0.43)
PYPL January (2016) 40 calls (PYPL160115C00040000, $0.85, up $0.08)
Entry Price: $1.05 (9/14/2015)
Exit Target: $2.10
Stop Target: None
Action: Resistance is at $34-$35. Support is at $32.
You can read my detailed write-up on PYPL in the Sept. 15 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.
Starbucks (SBUX) November 50 puts (from 9/28/2015) — Continue to hold.
Corning (GLW) November 19 calls (from 9/16/15) — Continue to hold.
Editor and Chief Options Strategist