Dear Momentum Options Subscriber,
This afternoon, I want to quickly cover the homebuilder sector of the market. One of the easiest ways to follow the sector is by tracking the SPDR S&P Homebuilders Index (XHB, $34.17, up $0.27). The index has made a strong recovery off of its February low of $27.72, and it is challenging its 200-day moving average on today’s pop past $34.
Within this area of the market, one of my favorite names to trade is KB Home (KBH, $14.53, up $0.04). Last year, we traded call options on KBH twice for profits of 92% and 6%. Obviously, I’m disappointed that I missed the run from $9.50, but there could be another $3 in upside potential from current levels.
The 52-week high for KBH is at $17.42, and the chart looks bullish. The 50-day moving average has cleared the 100-day moving average and appears on track to form a “golden cross” with the 200-day moving average. A solid base of support has formed at $14-$13.50.
Bullish traders could target the KBH May 14 calls (KBH160520C00014000, $0.97, up $0.02) for a possible run past $16-$17 by mid-May. These calls are “in the money” by $0.50 and should mirror any move in the stock closely.
If KBH shares trade to $16, technically, by May 20, these options will be $2 “in the money” for a return of 100%. If the stock reaches $17, these options would be worth $3 for a 200% return.
As far as the market goes today, the Dow is gaining 106 points to 17,683, while the S&P 500 is advancing 9 points to 2,057. The Nasdaq is higher by 28 points to 4,878, and the Russell 2000 is up a point to 1,098.
I still want to do a little more fundamental research on KBH before taking action, and there are a few other trades I like better at the moment. I’m hoping to get us into a New Trade ahead of the close, so stay locked and loaded.
I also issued a Trade Alert for our previous position in Hertz Global Holdings (HTZ) earlier this afternoon, so be sure to check that out now if you haven’t already.
Momentum Options Play List
Closed Momentum Options Trades for 2016: 38-7 (84%). 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.
Inovio Pharmaceuticals (INO, $9.26, up $0.05)
INO May 10 calls (INO160520C00010000, $0.65, down $0.05)
Entry Price: $0.55 (4/6/2016)
Exit Target: $1.10
Stop Target: $0.57 (Stop Limit)
Action: Resistance is at $9.75-$10. Support is at $9-$8.75.
You can read my extended write-up on INO in the April 4 Pre-Market Update.
Oracle (ORCL, $40.83, up $0.47)
ORCL May 42 calls (ORCL160520C00042000, $0.33, up $0.06)
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-$39.50.
Editor and Chief Options Strategist