Dear Momentum Options Subscriber,
Smith & Wesson Holding (SWHC, $25.01, down $0.74) will announce their earnings on Thursday, after the market close. With shares challenging crucial resistance levels, a breakout into blue-sky territory and fresh 52-week peaks could be in store on better-than-expected numbers. An earnings miss, or lowered outlook, could send shares tumbling.
The chart shows the major moving averages in a solid uptrend with a “rounded bottom” that has formed. I mentioned this technical setup in Monday’s Pre-Market Update and it is usually a bullish pattern.
Shares have traded to a high of $25.95 and $25.94 this week with resistance at $26 and the 52-week high of $26.54. A move above the latter could lead to a quick trip towards $28-$30. Support is at $24 followed by $23.50-$23. The 50-day moving average is at $22.39.
Wall Street is expecting the company to earn $0.39 a share on revenue just under $175 million for the recently ended quarter. Smith & Wesson has topped estimates by a nickel three times, and a dime, over the past four quarters.
The option chains are pricing in a substantial move in after-hours trading and on Friday’s open. The SWHC March 25 calls (SWHC160318C00025000, $1.45, down $0.25) and the SWHC March 25 puts (SWHC160318P00025000, $1.25 up $0.23) would cost $2.70 to create a straddle option trade and is pricing roughly a 10% move in the stock.
Shares would need to be above $28 or below $22, technically, by March 18th in order for this trade to make a decent double-digit profit. If shares move less than 10%, the premiums will quickly deflate and the trade will likely lose money.
As a directional play, bullish traders can target the SWHC March 27 calls (SWHC160318C00027000, $0.60, down $0.15) to play a breakout to $28 and fresh 52-week peaks. These options would double from current levels if shares trade above $28.20 over the next few weeks.
Bearish traders can use the SWHC March 23 puts (SWHC160318P00023000, $0.55, up $0.15) to play a breakdown to $22 or lower. These options would double if shares fall below $21.90 by March 18th.
I don’t take too many earnings trades because a number of factors have to go right. An earnings beat could be coupled with lower guidance, or, an earnings beat but with a revenue miss. These types of nuisances can affect bullish and bearish trades and why earnings trades can be frustrating.
I will likely sit on the sidelines to see where shares settle after the earnings announcement. I’m more bullish than bearish on SWHC and there could be a trade afterwards, once the dust settles. We waited to enter WFM after their earnings announcement and that trade has performed extremely well.
Turning to the market, the action is mixed heading into the second half of trading. The Dow is down 49 points to 16,815 while the S&P 500 is lower by a point to 1,977. The Nasdaq is falling 9 points to 4,679 and the Russell 2000 is up 3 points to 1,058.
I have updated our current trades and could have a New Trade ahead of the close. If you don’t hear from me by 3:30 p.m., we will continue to roll with the trades we have open.
Momentum Options Play List
Closed Momentum Options Trades for 2016: Daily 22-4 (85%) All trades are dated and time stamped so new subscribers can look at the past history to see how the trades have played out each and every day.
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 12:15 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.
Whole Foods Market (WFM, $32.59, up $0.13)
WFM April 33 calls (WFM160415C00033000, $1.10, up $0.10)
Entry Price: $0.54 (2/26/2016)
Exit Target: $1.50
Stop Target: $0.75 cents (Stop Limit)
Action: Resistance is at $33. Support is at $32-$31.50.
You can read my detailed write-up, in the Feb. 29 Pre-Market Update.
Green Dot (GDOT, $21.10, down $0.04)
June 22.50 calls (GDOT160617C00022500, $1.10, down $0.10)
Entry Price: $0.70 (2/24/2016)
Exit Target: $1.75-$2.10 (Limit Order on half at $1.75)
Stop Target: $0.95 cents (Stop Limit)
Action: Resistance is at $21.50 and the 52-week high of $21.62. A move above this level could lead to a quick run to $22-$24. Support is at $20.50-$20.
Oracle (ORCL, $37.65, down $0.34)
ORCL April 40 calls (ORCL160415C00040000, $0.40, down $0.07)
Entry Price: $0.40 (2/22/2016)
Exit Target: $0.80
Stop Target: None
Action: Support is at $37-$36.50. Resistance is at $38.25 and the 200-day moving average.
You can read my detailed write-up, in the Feb. 23 Pre-Market Update. Earnings are due out in a few weeks.
Bank of America (BAC, $13.34, up $0.20)
BAC April 14 calls (BAC160415C00014000, $0.35, up $0.07)
Entry Price: $0.30 (2/9/2016)
Exit Target: $0.60
Stop Target: None
Action: Resistance is at $13.50. A move above the latter could lead to a run towards $14-$14.25 and the 50-day moving average. Support is at $13.
Trades on Hold — other 2016 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.
Editor and Chief Options Strategist