Dear Momentum Options Subscriber,
Shares of Whole Foods Market (WFM, $29.50, up $0.12) traded to a fresh 52-week low of $28.07 on Monday, and the company is scheduled to announce its latest earnings figures following Wednesday’s close. The 52-week high is at $57.57, and shares are down nearly 50% from their peak.
The five-year chart shows that there is risk to $27.50-$25 if the company disappoints Wall Street with its numbers or forecast. A beat-and-raise quarter, however, could have shares easily rebounding past $30 towards $32.50.
Analysts are expecting the company to earn $0.40 a share on revenue of $4.81 billion. The high estimate is at $0.45 a share on sales just south of $5 billion. The low estimate has the company earning $0.34 a share on revenue of $4.7 billion.
This wide range likely means that shares could move 10% or more in after-hours trading and into Thursday’s session. Whole Foods has missed estimates during the past two quarters by $0.05 and $0.02, respectively. In the prior two quarters, the company matched and beat estimates by a penny.
There are both weekly and regular monthly options to trade on the stock, but I’m more interested in the March options, as they would give a potential trade more time to play out.
Bullish traders could target the WFM March 32 calls (WFM160318C00032000, $0.90, down $0.10) for a possible run to the low $30s. These options are slightly expensive, but they would double from current levels if shares trade past $34, technically, by mid-March. This would require roughly a 15% move in the stock from current levels.
Bearish traders could target the WFM March 26 puts (WFM160318P00026000, $0.75, up $0.05) for a possible drop below $25. A double would occur if shares trade below $24.50, technically, by mid-March.
Both aforementioned options purchased together would create a “strangle” option trade for a combined cost of $1.65-$1.75, based the bid/ask spread, with breakeven points at $33.75 and $24.25. A double would occur if shares trade past $35.50 or fall below $22.50. This would require shares to move 20% over the next five weeks to make a 100% return in the option trade.
Sentiment in the name has been very bearish lately, and one brokerage firm recently downgraded shares to Underperform from Market Perform. At the same time, an uninspiring “upgrade” for the stock from Underperform to Neutral was reported last week after one brokerage firm said that same-store sales might not be as bad as some are expecting.
It was also recently reported that Goldman Sachs (GS) holds a 6% stake in the company, so the firm will be looking for an impressive quarter.
I’m more bullish than bearish on WFM, but it is hard to argue with the chart and the lower lows the stock has been making. When I’m stuck in this type of quagmire, I usually refrain from taking a trade. However, this one looks like it may be too good to pass up. If I take action before Wednesday’s close, I will send out a Trade Alert.
As far as the market goes today, the bears are continuing their assault on the market’s support levels. The Dow is down 25 points to 16,001, while the S&P 500 is lower by 4 points to 1,849. The Nasdaq is off 19 points to 4,264, and the Russell 2000 is slipping 9 points to 959.
I have updated our current trades below, including a partial Profit Alert, so let’s go check the tape. I’m still hopeful that we can get into a New Trade today, but that will depend on how the last hour of trading shapes up.
Momentum Options Play List
Closed Momentum Options Trades for 2016: 16-2 (89%). 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.
Wal-Mart Stores (WMT, $65.80, down $1.10)
WMT March 60 puts (WMT160318P00060000, $0.90, up $0.29)
Entry Price: $0.65 (2/4/2016)
Exit Target: $1.00-$1.30 (Limit Order on first half at $1.00)
Stop Target: $0.70 (Stop Limit)
Action: The Limit Order to close the first half of the WMT March 60 puts at $1.00 triggered earlier in today’s session. Now, set a Stop Limit at $0.70 on the second half of the position.
Support is at $66.50 and the 200-day moving average, followed by $65. Resistance is at $68.
Rambus (RMBS, $11.68, down $0.26)
RMBS March 13 calls (RMBS160318C00013000, $0.16, down $0.09)
Entry Price: $0.35 (2/2/2016)
Exit Target: $0.70
Stop Target: None
Action: Support is at $11.75, followed by $11.65-$11.50 and the 50- and 100-day moving averages. Resistance is at $12-$12.25.
You can read my extended write-up in the Feb. 2 Pre-Market Update.
Opko Health (OPK, $7.80, up $0.10)
OPK March 7 puts (OPK160318P00007000, $0.40, down $0.01)
Entry Price: $0.35 (1/25/2016)
Exit Target: $0.70
Stop Target: None
Action: Support is at $7.50. Resistance is at $8.
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