Dear Momentum Options Subscriber,
Shares of Twitter (TWTR, $16.74, up $0.05) continue to set fresh 52-week lows with today’s test to $15.48. However, shares have rebounded nicely off their low and are now in positive territory.
The 52-week high is at $53.49 and the all-time high is at $74.83 that triggered on Dec. 26, 2013. With all due respect to “Amazing Grace,” the fall from grace has been amazing, to say the least.
In the Jan. 11 Pre-Market Update, I profiled the TWTR February 18 puts (TWTR160219P00018000, $2.70, up $0.26) at $1.03 and said they looked “tempting” to play continued weakness in the stock. Shares traded to a multi-year low of $16.43 on Tuesday with these options reaching a peak of $2.58. Today’s high has reached $3.25.
The options are now up more than 150% and, if you bought the aforementioned puts, I would exit at least half the trade at current levels while setting a stop at $2.10.
The TWTR February 16 puts (TWTR160219P00016000, $1.50, up $0.15) were the “cheaper” trade as these options were going for 51 cents going into the Jan. 11 open. These puts have returned a massive triple-digit gain of nearly 200%. These puts traded to a peak of $1.93 on TWTR’s low of $15.48. Same deal here, exit half the trade at current levels while setting a stop at $1.25.
These weren’t “official” recommendations for the portfolio as were have been busy with a number of other trades in route to a 10-0 start for the year. One of them was an Intel (INTC) earnings trade that returned 100%.
I don’t like taking a lot of earnings trades because there are too many factors that can cause shares to move in the opposite direction you are playing. A good earnings report can be crushed if a company offers a weak outlook or cuts estimates. If you are long calls, these options usually take a massive haircut once shares stumble on the news.
It is also hard to short bullish stocks or stocks with little short-interest. Starbucks (SBUX, $55.04, down $3.51) fits the bill of a stock that is hard to short due to its tremendous success story. I have done well with bullish SBUX option trades over the years but I’m a little hesitant in doing so this time around. Shares are down 6% and a rebound might be in store, but so could further weakness.
Shares are holding the 50-week moving average at $54.53 but face further risk to $50, and possibly $45 and the 100-week moving average, on an earnings miss, or lowered guidance. A rebound to $57.50-$60 could come on a blowout quarter but that might be asking a lot.
The company will report earnings following Thursday’s close. Wall Street is looking for a profit of $0.45 a share on revenue of $5.39 billion.
The high estimates have Starbucks earning $0.46 a share on sales $5.55 billion. The low estimates are pegged at $0.44 a share on revenue of $5.22 billion. In other words, a penny beat or miss could be the headline once earnings are announced.
Starbucks has matched estimates in three of the past four quarters with a penny beat in between.
The SBUX February 55 puts (SBUX160219P00055000, $2.29, up $1.34) are up a whopping 141% today after closing Tuesday’s session at 95 cents. These puts opened at $1.38 with a low of $1.24 and a high of $2.42. Obviously, these put options are up too much to chase.
The SBUX February 52.50 puts (SBUX160219P00052500, $1.33, up $0.78) are also up more than 140% and could be targeted for further weakness. However, I just don’t feel comfortable chasing them, either.
As a contrarian trade, bullish traders can “gamble” on a rebound in the stock by watching the SBUX February 60 calls (SBUX160219C00060000, $0.57, down $0.82). These calls are down 59% today. If SBUX trades higher into tomorrow’s close, aggressive traders might want to consider them.
I will likely be watching on the sidelines when it comes to SBUX. I will be interested in how the stock responds afterward as we could get a good setup to go long, or short, once the dust settles into next week.
Currently, the Dow is down 457 points to 15,558 while the S&P 500 is dropping 54 points to 1,827. The Nasdaq is tanking 116 points to 4,360 and the Russell 2000 is sinking 35 points to 959.
I have a few more trades I have added today in Harley-Davidson (HOG) and Garmin (GRMN) and I have updated them along with Exit Targets and charts. I have also raised the Stop Limit on our General Motors (GM) trade. Stay locked-and-loaded into the close in case I take additional action.
Momentum Options Play List
Closed Momentum Options Trades for 2016: 10-0 (100%). 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 1:40 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.
Garmin (GRMN, $31.25, down $1.27)
GRMN February 30 puts (GRMN160219P00030000, $1.20, up $0.45)
Entry Price: $0.93 (1/20/2016)
Exit Target: $2.00
Stop Target: None
Action: Shares of Garmin remain in a downtrend and I’m expecting a trip to $30 during the near-term. A close below this level could lead to additional selling pressure down to $28-$27.50.
Harley-Davidson (HOG, $39.03, down $1.41)
HOG February 37.50 puts (HOG160219P00037500, $1.54, up $0.49)
Entry Price: $1.20 (1/20/2016)
Exit Target: $2.40
Stop Target: None
Action: Shares of Harley-Davidson are at multi-year lows and face risk to $37.50-$35 on continued weakness.
General Motors (GM, $29.49, flat)
GM February 28 puts (GM160219P00028000, $0.70, down $0.05)
Entry Price: $0.69 (1/11/2016)
Exit Target: $1.30 (Closed first half at $1.00 on 1/15/16)
Stop Target: $0.95 (Stop Limit).
Action: I raised the Stop Limit from $0.65 to $0.95 on the other half of the trade. Today’s low on the puts has been 97 cents.
Support is at $29. Resistance is at $30.
You can read my detailed write-up on GM in the Jan. 12 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.
General Electric (GE) February 32 calls — Continue to hold.
3D Systems (DDD) February 11 calls — Continue to hold.
Editor and Chief Options Strategist