Dear Momentum Options Subscriber,
Take-Two Interactive Software (TTWO, $33.60, down $1.02) is scheduled to announce its latest earnings figures this Wednesday, Feb. 3, after the market closes.
Shares are just below their 50-day moving average, which has flattened out and is showing a slight sign of rolling over. The 100- and 200-day moving averages are still in an uptrend, and they should provide support for the stock. Resistance is at $37 per share on better-than-expected results. There is also support at $30 on a potential earnings miss.
Wall Street is expecting earnings of $0.50 a share on revenue north of $452 million. The high estimate is at $0.55 a share on sales above $506 million. The low forecast has the company earning $0.43 a share on revenue of $425 million.
The company topped analysts’ expectations by $0.15 last quarter, but it missed by $0.05 in the previous quarter. This follows two other earnings beats of $0.22 and $0.35, respectively.
Given the earnings history, I’m expecting another wide beat or miss.
Although I have been slightly bullish on TTWO over the years, I’m a little hesitant to take a directional call option trade. The TTWO February 35 calls (TTWO160219C00035000, $0.80, down $0.55) look tempting at current levels, but they expire in less than three weeks. These options would double if TTWO trades to $36.60 after the announcement or over the next few weeks.
I also don’t like betting against a company that has the potential to blow out estimates, which is why I don’t feel too cozy using put options either. The TTWO February 33 puts (TTWO160219P00033000, $1.10, up $0.20) could be targeted by bearish traders expecting a breakdown to Chinatown, as they would double if shares trade to $30.80, technically, by Feb. 19.
Both aforementioned options purchased together would cost just under $2 to create a “strangle” option trade. The breakeven points would be near $37 and $31. Double-digit profits could be made with a move above or below these levels. A triple-digit profit would occur if TTWO shares are pushing $39 or testing $29, technically, by Feb. 19.
I will likely sit on the sidelines ahead of the company’s earnings announcement on Wednesday, but the action will be exciting to watch.
As far as the market goes this afternoon, the bulls are struggling to hold support once again. The Dow is dropping 261 points to 16,187, while the S&P 500 is lower by 30 points to 1,909. The Nasdaq is sinking 70 points to 4,550, and the Russell 2000 is tanking 21 points to 1,011.
I have updated our current trades below, so let’s go check the tape. I could also have another New Trade ahead of today’s close, so stay locked and loaded in case I take additional action.
Momentum Options Play List
Closed Momentum Options Trades for 2016: 14-2 (88%). 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 1:05 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.
Rambus (RMBS, $12.04, down $0.27)
RMBS March 13 calls (RMBS160318C00013000, $0.27, down $0.08)
Entry Price: $0.35 (2/2/2016)
Exit Target: $0.70
Stop Target: None
Action: The calls opened at $0.35 and have traded to a low of $0.26. I would like to see shares hold $12 into the closing bell. Backup support is at $11.75 on a close above this level. Resistance is at $12.25-$12.50.
You can read my extended write-up in the Feb. 2 Pre-Market Update.
Opko Health (OPK, $7.71, down $0.22)
OPK March 7 puts (OPK160318P00007000, $0.35, flat)
Entry Price: $0.35 (1/25/2016)
Exit Target: $0.70
Stop Target: None
Action: Near-term support is at $7.75-$7.50. Resistance is at $8-$8.25.
You can read my earlier write-up in the Jan. 26 Pre-Market Update.
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.
Garmin (GRMN) February 30 puts — Continue to hold.
Editor and Chief Options Strategist