Dear Momentum Options Subscriber,
I have traded options on Krispy Kreme Doughnuts (KKD, $15.36, up $0.37) over the years, and I have been bearish on the name for the past few. Last year, the portfolio recommended six successful KKD put option trades, with three of them returning gains of 100%, 47% and 42%. The other three trades were winners as well, so you can see why I always look forward to the company’s earnings announcements.
Krispy Kreme is scheduled to report earnings on March 22, and I often mention how the company’s numbers aren’t always sweet. This former Wall Street darling failed to impress analysts in 2015 after reporting two flat quarters, a $0.02 beat and a $0.04 miss.
Shares have made a nice recovery off of the recent 52-week low of $12.90 that was tapped in mid-February. The 50-day moving average is trying to flatten out, and the 100-day moving average is curling higher.
This time around, the suits-and-ties are expecting a profit of $0.21 a share on revenue of $133 million. The high estimate has Krispy Kreme beating estimates by a penny, while the low estimate has penciled in a $0.02 miss. Revenue could come in a million ahead or a million light.
With the regular March options expiring next Friday, option traders could look to the April chain for a speculative play on Krispy Kreme.
Since I have mixed feelings on the stock, which has a bullish chart and sketchy fundamentals, I have been looking at a possible “strangle” option trade to play a major move in the shares.
The KKD April 16 calls (KKD160415C00016000, $0.50, up $0.05) could be used by bullish traders expecting continued strength in the stock and a possible earnings beat with raised guidance. These options will double if shares are trading at $17 or higher come mid-April.
Bearish traders could target the KKD April 15 puts (KKD160415P00015000, $0.65, down $0.05) for a possible earnings miss or lowered guidance and a move back towards the 50-day moving average. These options would double if shares are trading below $13.70 by mid-April.
Both aforementioned options, purchased together, would create a strangle option trade with a combined cost of $1.15. The breakeven points would be $17.15 and $13.85. A double, or 100% return, would occur if KKD shares are above $18.30 or below $12.70 by mid-April.
There is no need to “rush” into either aforementioned call or put option, although I do favor the call options at current levels. Instead, I’m watching for a possible setup by late next week, and I will decide then if there is likely to be continued strength or perhaps upcoming weakness before possibly playing the action.
The Dow came into the week at 17,006, and the S&P 500 was at 1,999.99 ahead of Monday’s open. The Nasdaq stood at 4,717, and the Russell 2000 was at 1,072. The bulls have cleared these levels, but I wanted to point them out in case there is some final-hour weakness.
Currently, the Dow is up 173 points to 17,168, while the S&P 500 is higher by 25 points to 2,014. The Nasdaq is gaining 64 points to 4,726, and the Russell 2000 is adding 18 points to 1,082.
I have updated our current trades ahead of the weekend, and I also have a Profit Alert listed below for our position in Green Dot (GDOT), so please be sure to check that out.
I will have a complete update on Monday that focuses on what this week’s action could mean for the market. Until then, have a great and safe weekend.
Momentum Options Play List
Closed Momentum Options Trades for 2016: 27-4 (87%). 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 2:55 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.
Green Dot (GDOT, $22.05, up $0.14)
GDOT June 22.50 calls (GDOT160617C00022500, $1.60, up $0.10)
Entry Price: $0.70 (2/24/2016)
Exit Target: $2.10 (Limit Order on first half)
Stop Target: $1.40 (Stop Limit)
Action: The Stop Limit at $1.40 was triggered earlier today, and we are now out of the position.
Shares have mostly traded in positive territory throughout the session, but the $0.03 drop to $21.88 tripped our Stop Limit order.
American Express (AXP, $59.47, up $0.72)
AXP April 62.50 calls (AXP160415C00062500, $0.60, up $0.07)
Entry Price: $0.60 (3/11/2016)
Exit Target: $1.20
Stop Target: None
Action: Near-term resistance is at $60. Support is at $58.50-$58.
Mylan (MYL, $48.15, up $0.86)
MYL April 45 puts (MYL160415P00045000, $0.93, down $0.28)
Entry Price: $1.10 (3/10/2016)
Exit Target: $2.20
Stop Target: None
Action: Resistance is at $49-$49.25 and the sloping 50-day moving average. Support is at $47-$46.50, with risk to $45-$44 on a close back below the latter.
You can read my original write-up in this morning’s Pre-Market Update.
Rambus (RMBS, $13.22, up $0.09)
RMBS April 13 calls (RMBS160415C00013000, $0.59, flat)
Entry Price: $0.40 (3/7/2016)
Exit Target: $0.80
Stop Target: $0.50 (Stop Limit)
Action: Resistance is at $13.25-$13.50. Support is at $12.75-$12.60 and the 200-day moving average if $13 fails to hold.
Intel (INTC, $31.64, up $0.39)
INTC April 29 puts (INTC160415P00029000, $0.24, down $0.09)
Entry Price: $0.38 (3/7/2016)
Exit Target: $0.80
Stop Target: None
Action: Short-term resistance is at $31.50, but it is getting stretched. Support is at $30.50-$30.
You can view a chart for INTC and read my write-up in the March 7 New Trade Alert.
Editor and Chief Options Strategist