Dear Momentum Options Subscriber,

It’s never easy picking a bottom in a stock, and trying to catch a falling knife can be scary. With shares of GoPro (GPRO, $17.70, up $0.19) trading to a fresh 52-week low of $17.24 on Monday, this is exactly what buying call options in GPRO must feel like.

 

Analysts have bailed on the stock recently, as there have been numerous downgrades and reduced price targets following GPRO’s earnings miss and lowered guidance in late October.

The company reported a third-quarter profit of $0.25 a share on revenue just north of $400 million. Wall Street was looking for $0.29 a share on sales above $433 million.

GoPro also said it expected current-quarter earnings of $0.35-$0.45 a share on revenue between $500 and $550 million. Analysts had penciled in $0.82 a share on revenue just above $690 million.

The company is also losing some of its overall market share as competition heats up and cheaper models come to market. This has cut into GoPro’s gross margins, as their cameras sell for higher premiums.

However, GoPro might be considered best-of-breed by most analysts in a crowded market. Future content deals will likely set the company apart from the competition if its game plan comes together. The GoPro channel is now available on Amazon Fire TV, and other licensing deals could be in the works.

The company’s CEO has recommitted to its marketing efforts, which he admitted were slack in recent quarters. Shares have crumbled from a 52-week high of $69.75, and the downside momentum has been breathtaking to watch.

There is likely risk to the low teens, or even to single-digits, on another lousy earnings report, which is why this holiday season will be extremely important for GPRO. Fourth-quarter earnings will likely be announced in late January or early February, but this headline risk could be removed by trading near-term GPRO options.

The GPRO January 20 calls (GPRO160115C00020000, $0.70, up $0.03) could be used by bullish traders to play a rebound to $20. However, it might be best to wait for a move above $18 before going long.

If shares lose today’s luster and fall back below $17.25, bearish traders could target the GPRO January 15 puts (GPRO160115P00015000, $0.55, down $0.05) for a further breakdown in the stock.

With shares down roughly 65% from their all-time high, a bullish position looks tempting as a contrarian trade against the current sentiment. If I take action on GPRO, I will send out a Trade Alert. For now, I will simply add the aforementioned call and put options to my watch list.

Turning to our portfolio, there are three bullish positions with December expirations that are left over from our last round of trades in October and November. The December options expire next Friday, and the Federal Reserve’s next policy announcement will be made two days earlier on Dec. 16. These three trades will likely come down to the wire and could continue to experience huge price swings. I’m still hopeful that all of them can come back to make us a profit, but it could be a white-knuckle ride.

The January options have nearly five weeks left before they expire, and we are current holding four open trades with January expirations that we entered in November and December to get a head start on 2016. I will likely open between five and eight positions over the next few weeks to build out the current set of trades we have already entered. I could also add a few put option trades on a continued market pullback or on weak stocks that are about to crack.

The portfolio is 10-8 since the start of October, which reflects the trading range we have been in during that time. For the year, we are still averaging a win rate of almost 70%. However, when a clearer trend emerges, trading will become much easier, so please keep all of this in mind given the current environment. I’m hopeful that we will get the clues on which way the trend is headed for the rest of the year and into January by next week. In the meantime, we just need to be patient and wait for the action to unfold.

I profiled six possible trades in Monday’s Pre-Market Update and another in my commentary above. Now, we just have to wait for the clues to go long or short.

As far as the market goes, futures were showing another backtest to support this morning. The Dow is down 150 points to 17,579, while the S&P 500 is declining 12 points to 2,064. The Nasdaq is lower by 5 points to 5,096, and the Russell 2000 is off 4 points to 1,160.

Momentum Options Play List

Closed Momentum Options Trades for 2015: 95-41-2 (69%). 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 2:15 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.

 

Medtronic (MDT, $78.14, up $0.19)

MDT January 80 calls (MDT160115C00080000, $0.72, up $0.03)

Entry Price: $0.72 (12/8/2015)

Exit Target: $1.45

Return: 0%

Stop Target: None

Action: I would like to see $78 hold into the close. The 52-week and all-time high is at $79.50, which represents the next layer of resistance. A move above this level could lead to a blue-sky breakout towards the mid-$80s. Support is at $76, followed by $75-$74.75 and the 200-day moving average. The 50-day moving average has cleared the 100-day moving average. A move above the 200-day moving average would form a “golden cross,” which would confirm the bullish setup.

 

You can read my detailed write-up on MDT in the Dec. 2 Mid-Market Update.

 

SPDR Gold Shares (GLD, $102.76, up $0.09)

GLD January 95 puts (GLD160115P00095000, $0.23, down $0.01)

Entry Price: $0.51 (12/2/2015)

Exit Target: $1.05

Return: -55%

Stop Target: None

Action: Support is at $102. Resistance is at $104.

You can read my detailed write-up on Gold and GLD in the Nov. 30 Pre-Market Update.

 

MGM Resorts International (MGM, $22.10, down $0.22)

MGM January 25 calls (MGM160115C00025000, $0.16, down $0.08)

Entry Price: $0.53 (12/2/2015)

Exit Target: $1.05

Return: -70%

Stop Target: None

Action: Support is at $22-$21.75 and the 50-day moving average. Near-term resistance is at $23.

 

Harris (HRS, $84.31, up $0.47)

HRS December 85 calls (HRS151218C00085000, $0.70, up $0.05)

Entry Price: $1.25 (11/19/2015)

Exit Target: $2.50

Return: -44%

Stop Target: None

Action: Resistance is at $84-$85. Near-term support is at $82.

 

Wells Fargo (WFC, $54.77, down $0.65)

WFC December 57.50 calls (WFC151218C00057500, $0.07, down $0.02)

Entry Price: $0.38 (11/18/2015)

Exit Target: $0.80

Return: -82%

Stop Target: None

Action: Support is at $55-$54.50 and the 200-day moving average. Resistance is at $56-$56.25.

You can read my write-up on WFC in the Nov. 19 Pre-Market Update.

 

PowerShares QQQ Trust (QQQ, $114.62, down $0.52)

QQQ December 117 calls (QQQ151218C00117000, $0.28, down $0.02)

Entry Price: $0.63 (11/10/2015)

Exit Target: $1.00 (Limit Order)

Return: -56%

Stop Target: None

Action: Support is at $113.50-$112.50. Resistance is at $115.50-$115.75 and the all-time high.

 

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) January 20 calls — Continue to hold.

Trade on!

Rick Rouse
Editor and Chief Options Strategist
Momentum Options