Dear Momentum Options Subscriber,

Qualcomm (QCOM, $48.53, up $0.95) is scheduled to report its latest quarterly earnings after Wednesday’s close, and the company could silence its critics and halt its sliding stock price by posting better-than-expected results.

Despite topping estimates during the past four quarters by $0.05, $0.04, $0.07 and $0.09, respectively, shares tested a fresh 52-week low of $44.39 last week. Analysts are now expecting the company to earn $0.90 a share on revenue of $5.69 billion.

The backtest to resistance at $49 and the 50-day moving average failed on Monday’s run to $48.39. The technical picture remains somewhat bearish, but the major moving averages are trying to level out. Short-term support is at $46.50, followed by $45-$44.50.

 

The company currently pays a 4% yearly dividend of $1.92 a share. This might attract lazy fund managers to the stock, but a lousy quarter and lowered outlook could jeopardize the payout. On the other hand, a rosy quarter with sunny guidance could cause a short-covering rally.

The pullback looks like an attractive entry point, but earnings are always a tricky proposition, which is why it might be best to limit some risk.

Bullish traders could target the QCOM February 50 calls (QCOM160219C00050000, $1.25, up $0.15) for a possible rebound towards $49-$50. A close above $52.50, technically, by mid-February would double these call options from current levels, as they would be $2.50 “in the money.” These are the regular monthly options that expire on Feb. 19.

Bearish traders could target the QCOM January 45 puts (QCOM160129P00045000, $0.40, down $0.25) for a possible push to fresh 52-week lows. However, these are the weekly options that expire this Friday, and shares would need to be below $44.60 to break even on the trade. A double would occur if shares trade below $44.20 ahead of Friday’s closing bell.

The bid/ask prices can be a little wide when trading weekly options, so, while this is not an official trade, it would be best to use limit orders for any potential entries. Buying both aforementioned options together would create a “strangle” option trade, with a combined cost of $1.65. If shares are above $52 by mid-February, or below $43 by this Friday, the trade will be profitable. A triple-digit profit would occur if shares are above $53.30 or below $41.70 over the same time periods.

The premium and QCOM’s price movement might be asking a bit too much for the trade, which is why I will be watching the news from the sidelines. We already have one earnings trade on tap with Harley-Davidson (HOG)’s numbers due to be released on Thursday, and I don’t like playing multiple earnings trades at once. They are great when they work, but premiums can get whacked if there is very little price movement, or if shares move against you in a directional trade.

We had great success with our Intel (INTC) trade by hitting our first 100% win for the year, but earnings trades are always tricky no matter how much homework or math you do.

As far as the market goes today, the Dow is up 237 points to 16,122, while the S&P 500 is higher by 20 points to 1,897. The Nasdaq is gaining 35 points to 4,554, and the Russell 2000 is jumping a dozen points to 1,010.

Momentum Options Play List

Closed Momentum Options Trades for 2016: 11-0 (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 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.

 

Harley-Davidson (HOG, $38.64, down $1.45)

HOG February 37.50 puts (HOG160219P00037500, $1.55, up $0.42)

Entry Price: $1.20 (1/20/2016)

Exit Target: $1.80-$2.40 (Limit Order on first half at $1.80)

Return: 29%

Stop Target: None

Action: Set a Limit Order to close the first half of the HOG February 37.50 puts at $1.80.

Support is at $38.75. Fresh resistance is at $40. Earnings are due out on Thursday.

You can read my full write-up on HOG in the Jan. 21 Mid-Market Update.

 

Opko Health (OPK, $7.89, down $0.07)

OPK March 7 puts (OPK160318P00007000, $0.43, up $0.08)

Entry Price: $0.35 (1/25/2016)

Exit Target: $0.70

Return: 23%

Stop Target: None

Action: Near-term support is at $7.75-$7.50. Resistance is at $8.25-$8.50, followed by $9.

You can read my earlier write-up and view the chart for OPK in this morning’s Pre-Market Update.

 

Cisco Systems (CSCO, $23.79, up $0.62)

CSCO February 24 calls (CSCO160219C00024000, $0.69, up $0.23)

Entry Price: $0.52 (1/22/2016)

Exit Target: $1.10

Return: 33%

Stop Target: None

 

CSCO March 25 calls (CSCO160318C00025000, $0.46, up $0.13)

Entry Price: $0.40 (1/22/2016)

Exit Target: $0.90

Return: 15%

Stop Target: None

Action: Near-term resistance is at $24-$24.50. Support is at $23-$22.50.

You can read my full writeup in the Jan. 22 Mid-Market Update.

 

Garmin (GRMN, $33.95, up $0.75)

GRMN February 30 puts (GRMN160219P00030000, $0.52, down $0.19)

Entry Price: $0.93 (1/20/2016)

Exit Target: $2.00

Return: -44%

Stop Target: None

Action: Resistance is at $34. Support is at $33, followed by $32-$30.

You can read my expectations for earnings 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.

Trade on!

Rick Rouse
Editor and Chief Options Strategist
Momentum Options