Dear Momentum Options Subscriber,
Shares of Energous (WATT, $10.36, down $0.66) surged nearly 14% on Tuesday to close in double-digit territory following its stay a tight trading range.
I first profiled WATT’s story in the March 15 New Trade Alert when shares were just south of $8. Then, in my detailed write-up in the March 17 Mid-Market Update, I talked about how the company’s game-changing technology might benefit the stock price on a possible deal with Apple (AAPL).
Although this potential partnership was speculation on my part, and on the part of other news sources, it has taken a lot to put the pieces of this puzzle together. First, we had a company that was bleeding cash, but one that has a potentially explosive solution for charging smart devices wirelessly. Second, huge short positions have been taken by traders that said the company wasn’t “commercially viable.”
While this kind of news is important for any stock (bullish or bearish), price action, momentum and the technical setup are more crucial.
I said that shares could break out into blue-sky territory on any positive news developments despite a lousy balance sheet. Although a deal with Apple is still a possibility, Energous did, in fact, sign a definitive development agreement with a company called Pegatron. The deal names Pegatron as a non-exclusive partner to license Energous’ WattUp technology into applicable products.
Additionally, the company’s CEO recently said that the short-selling was overblown, as its technology will become commercially viable late this year or early next year. These key events have been the catalysts for the stock’s recent surge.
We were fortunate enough to make a double-digit return of 50% with the WATT May 10 calls (WATT160520C00010000, $1.00, down $0.60) in mid-March. I recommended the call options at $0.80, and we were stopped out of the trade at $1.20 following a backtest to $8.50.
I wanted to get us back into a bullish WATT trade, but the options started to get expensive and carry wider bid/ask spreads. I like to trade options with heavy volume and tight spreads within a nickel.
A position in the stock could have made for decent a short-term trade, but I don’t aggressively trade stocks as much as I do options. The main reason is that option trading can be done with less capital. More importantly, options provide much larger returns than the single-digit returns on stocks that most fund managers strive to make for their clients in a year. Their strategies are boring — to say the least.
I wanted to share my additional thoughts on WATT, as I realize that some of you may still have “open” positions. While we were officially stopped out of the trade in the portfolio, the other part of teaching options trading is to remind traders to lock in half profits once a triple-digit return is achieved. It is also important to set trailing Stop Limits. This will ensure that a winning trade doesn’t turn into a losing trade, so it is crucial to follow this practice. The aforementioned call options traded past $2 yesterday.
Often times, inexperienced option traders hold onto a position longer in hopes of making even bigger gains. While I’m disappointed that our original trade didn’t make a triple-digit return, it’s hard to be jealous when we made 50% in a week.
I will continue to track WATT for another possible option trade while sitting on the sidelines, but I wanted to provide this additional update.
As far as the market goes, all is good in the bulls’ neighborhood. The Dow is gaining 65 points to 17,698, while the S&P 500 is up 6 points to 2,061. The Nasdaq is higher by 17 points to 4,864, and the Russell 2000 is flat at 1,109.
I have partial Profit Alert for our position in Nucor (NUE) listed below, as our initial Exit Target was triggered this morning, so let’s go check the action.
Momentum Options Play List
Closed Momentum Options Trades for 2016: 34-6 (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.
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 1:25 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.
Nucor (NUE, $48.28, up $1.04)
NUE April 48 calls (NUE160415C00048000, $1.03, up $0.41)
Entry Price: $0.55 (3/17/2016)
Exit Target: $0.80 (Limit Order on first half)
Stop Target: $0.57 (Stop Limit)
Action: The Limit Order to close the first half of the NUE April 48 calls at $0.80 triggered on the stock’s surge to $48.42 today. Continue to hold the second half of the position.
You can read my extended write-up on NUE in the March 28 Pre-Market Update.
Oracle (ORCL, $40.88, up $0.18)
ORCL May 42 calls (ORCL160520C00042000, $0.54, up $0.03)
Entry Price: $0.55 (3/29/2016)
Exit Target: $1.10
Stop Target: None
Action: Resistance is at $41-$41.25. Support is at $40.
Rambus (RMBS, $13.74, down $0.13)
RMBS May 14 calls (RMBS160520C00014000, $0.58, down $0.04)
Entry Price: $0.45 (3/28/2016)
Exit Target: $0.90
Stop Target: None
Action: Support is at $13.75-$13.50. Resistance is at $14.
You can read my full write-up on RMBS in the March 29 Pre-Market Update.
Editor and Chief Options Strategist