Dear Momentum Options Subscriber,
The Dow will be in focus on Friday morning, with Caterpillar (CAT, $78.98, up $0.01) and McDonald’s (MCD, $128.15, down $0.40) scheduled to report their latest earnings before the market opens. While I have followed both companies for many years, I want to take a look at CAT’s numbers this afternoon, as the option chains are slightly “cheaper.”
The chart for CAT looks bullish, and shares at multi-month highs. The 52-week peak is at $89.62, and a “golden cross” formed earlier this month when the 50-day moving average crossed above the 200-day moving average.
In mid-March, the company warned that earnings would come in shy of expectations. Wall Street was looking for $0.97 a share on revenue north of $10 billion. CAT lowered its numbers to $0.65-$0.70 a share on revenue of between $9.3 and $9.4 billion. Current estimates forecast CAT’s results coming in at $0.68 a share on revenue just shy of $9.4 billion.
The company beat analyst forecasts last time it reported, and it has matched estimates once over the past three quarters. Sandwiched in between were an earnings miss by $0.03 and a beat by $0.51. Lost in the shuffle is the fact CAT has missed revenue numbers during the past three quarters.
Given the wild swings in its top- and bottom-line numbers, placing a directional earnings trade seems to be a risky endeavor.
The CAT May 82.50 calls (CAT160520C00082500, $1.00, down $0.03) are slightly out of the money (OTM) and could be used by bullish traders expecting a run to the mid- to upper-$80s. These calls would double from current levels if shares are trading at $84.50, technically, by late May.
The CAT May 76 puts (CAT160520P00076000, $1.35, down $0.10) are also OTM and could be used by bearish traders targeting a backtest to $76-$74. These puts would double from current levels if shares are trading below $73.30, technically, by late May.
Both aforementioned options purchased together would create a “strangle” option trade and are pricing in a 3% move in the stock. The breakeven points for the trade are at $78.70 or $73.00. The trade would double if shares are above $87.20 or below $71.30, technically, by May 20.
I will likely pass on an earnings trade for CAT despite the pending breakout or breakdown that may occur after the report is released.
The Dow is currently lower by 73 points to 18,022, while the S&P 500 is off 7 points to 2,095. The Nasdaq is lower by a point to 4,947, and the Russell 2000 is down 4 to 1,138.
I have updated our current trades below, so let’s go check the tape.
Momentum Options Play List
Closed Momentum Options Trades for 2016: 42-7 (86%). 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.
Halozyme Therapeutics (HALO, $12.16, up $0.26)
HALO May 13 calls (HALO160520C00013000, $0.83, up $0.13)
Entry Price: $0.65 (4/20/2016)
Exit Target: $1.30
Stop Target: None
Action: Continued closes above $12 would be bullish for a run at $12.50-$13 over the near term. Support is at $11.75-$11.50 and the 100-day moving average.
You can read my original write-ups on HALO in the April 15 Mid-Market Update.
Whole Foods Market (WFM, $29.62, down $1.13)
WFM May 33 calls (WFM160520C00033000, $0.32, down $0.25)
Entry Price: $0.48 (4/18/2016)
Exit Target: $0.75-$1.00
Stop Target: None
Action: Support is at $30-$29.50. Resistance is at $31-$31.50 and the major moving averages.
You can read my original write-up on WFM in the Feb. 9 Pre-Market Update.
Inovio Pharmaceuticals (INO, $10.22, up $0.48)
INO May 10 calls (INO160520C00010000, $0.80, up $0.15)
Entry Price: $0.60 (4/13/2016)
Exit Target: $1.20
Stop Target: None
Action: Support is at $9.75-$9.50. Resistance is at $10.25-$10.50, followed by the 52-week high at $10.77.
You can read my extended write-up on INO in the April 4 Pre-Market Update.
Wal-Mart Stores (WMT, $69.20, down $0.01)
WMT May 65 puts (WMT160520P00065000, $0.36, flat)
Entry Price: $0.73 (4/12/2016)
Exit Target: $1.50
Stop Target: $0.25 (Stop Limit on first half)
Action: Support is at $68-$67.50. Resistance is at $69.50-$70.
Oracle (ORCL, $41.05, down $0.05)
ORCL May 42 calls (ORCL160520C00042000, $0.45, flat)
Entry Price: $0.55 (3/29/2016)
Exit Target: $1.10
Stop Target: None
Action: Support is at $41, followed by $40.75-$40.50. Resistance is at $42.50-$43.
Editor and Chief Options Strategist