Dear Momentum Options Subscriber,
Retail stocks have been taken to the woodshed in recent weeks, as lousy earnings, warm weather and high inventory levels have punished the sector. Best Buy (BBY, $31.34, up $0.63) will try to avoid the pitfalls that have plagued other retailers when it announces its numbers ahead of tomorrow’s open.
The company is expected to earn $0.35 a share on revenue of $8.86 billion. The high estimate has Best Buy earning $0.42 a share on sales north of $9 billion. The low estimate is calling for earnings of $0.30 a share on revenue of $8.76 billion.
Best Buy has beaten estimates over the past four quarters by $0.15, $0.08, $0.13 and $0.09, respectively. With this kind of momentum, it would be hard to bet against the company topping estimates again.
With that said, the chart for Best Buy looks extremely bearish. A “death cross” is in the process of forming, with the 50-day moving average in a downtrend and on course to fall below the 200-day moving average.
The recent 52-week low of $28.32 was triggered during the market selloff in late August. At current levels, a move of 10% or more is likely forthcoming. This means that shares could test $34 and the 100-day moving average on an earnings beat and raised guidance or $28 and fresh 52-week lows on an earnings miss and lowered guidance.
The regular November options expire this Friday, so I would avoid those when looking for a possible trade.
The BBY December 34 calls (BBY151218C00034000, $0.80, up $0.13) look tempting for a bullish play, but these options are a tad bit expensive. The breakeven point, technically, is at $34.80 by mid-December. A double would occur if shares trade to $35.60 over the same time period.
The BBY December 28 puts (BBY151218P00028000, $0.75, down $0.17) could be used to play a move below $28. The breakeven point is at $27.25, technically, by mid-December. A double would occur if shares fall below $26.50 by Dec. 18.
Both aforementioned options together would create a “strangle” trade, with breakeven points of $35.50 or $26.50 by mid-December.
I don’t like the risk/reward of either a directional trade or a strangle option trade on BBY at this time. However, a better trade could emerge after earnings are announced, as the premium in the call and put options could unravel and become cheaper, depending on how the stock trades.
As far as the market goes today, the bulls are once again pushing resistance and will be trying to hold those key levels into the close.
The Dow is currently gaining 131 points to 17,621, while the S&P 500 is up 15 points to 2,066. The Nasdaq is adding 44 points to 5,030, and the Russell 2000 is advancing 7 points to 1,160.
I have updated our current trades below, and I’m still hoping that we can add a New Trade today or tomorrow, so stay locked and loaded into the close in case I take action.
Momentum Options Play List
Closed Momentum Options Trades for 2015: 93-38-2 (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 1:15 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.
Jabil Circuit (JBL, $24.70, up $0.72)
JBL December 25 calls (JBL151218C00025000, $1.00, up $0.19)
Entry Price: $0.65 (11/10/2015)
Exit Target: $1.30
Stop Target: $0.70 (Stop Limit)
Action: Resistance is at $25. Support is at $24-$23.50.
You can read my detailed write-up on JBL in the Nov. 10 Mid-Market Update.
PowerShares QQQ Trust (QQQ, $112.66, up $1.17)
QQQ December 117 calls (QQQ151218C00117000, $0.37, up $0.12)
Entry Price: $0.63 (11/10/2015)
Exit Target: $1.30
Stop Target: None
Action: Resistance is at $112.50-$113. Support is at $110.
Comcast (CMCSA, $61.93, up $0.80)
CMCSA December 65 calls (CMCSA151218C00065000, $0.43, up $0.08)
Entry Price: $0.74 (11/3/2015)
Exit Target: $1.50
Stop Target: None
Action: Resistance is at $61.50-$62. Support is at $60 and the 100-day moving average.
You can read my detailed write-up on CMCSA in the Nov. 4 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.
Hilton Worldwide Holdings (HLT) December 27 calls — Continue to hold.
iShares Russell 2000 (IWM) December 124 calls — Continue to hold.
Editor and Chief Options Strategist
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