Dear Momentum Options Subscriber,

Futures were rising steadily throughout the night, and Dow futures were up by triple-digits at one point. However, they turned south ahead of this morning’s open. So far, the momentum pendulum has been swinging on both sides of the ledger, but today’s action has been a little more volatile given the price fluctuations before the opening bell.

Home Depot (HD, $133.56, down $1.64) shares are trading lower today following a good earnings report that was released ahead of the open. The company reported a profit of $1.44 a share on revenue north of $22.7 billion. Wall Street was looking for $1.36 a share on sales just under $22.4 billion.

Despite the huge earnings beat, the action in the stock today appears to be a classic case of the “buy the rumor, sell the news” phenomenon. Shares recently set an all-time high of $137.82, but they have traded in the red throughout today’s session.

I often talk about potential earnings trades, but the option premiums on Home Depot were super expensive. For example, the HD June 140 calls (HD160617C00140000, $0.41, down $1.08) are down over 70%, while the HD June 130 puts (HD160617P00130000, $2.10, up $0.15) are up only slightly, as the stock has moved just 1% lower.

There is a good chance that shares will be above $140 or below $130 by mid-June, so I will keep these options on my watch list. Shares could continue to trade sideways over the near term, but continued closes above or below the 50-day moving average would be good clues going forward.

 

The pullback in HD is weighing on the Dow, and other traders are blaming oil’s slight pullback for today’s declines. At over $48 a barrel, oil is at six-month highs, and investors are now betting that it will reach $50 before it sees $40 again.

One bullish sign is that the transports are trading higher for the second-straight session. I mentioned in Monday’s Pre-Market Update that the Dow Jones Transportation Average ($TRAN, 7,694, up 131) needed to hold the 7,500-7,400 level, and a close above 7,750 and the 200-day moving average would be a bullish story.

The Dow is down 44 points to 17,665, while the S&P 500 is falling 4 points to 2,062. The Nasdaq is lower by 7 points to 4,768, and the Russell 2000 is up a point to 1,117. The S&P 500 Volatility Index ($VIX, 14.82, up 0.15) has traded above 15, but it is currently holding this level.

As a reminder, I will be including the Momentum Q&A section in tomorrow’s Pre-Market Update, which will give you the opportunity to ask me questions about the market and our current trades. To submit your questions, simply send your messages to service@momentumoptions.com, and I will do my best to address them every Wednesday morning.

As a reminder, the SEC’s guidelines prohibit me from answering any questions about securities that are not currently on our Momentum Options buy list or from providing individualized trading advice or recommendations for any specific subscriber or portfolio.

I encourage you to send in any questions that I can help with, particularly those that may benefit the broad Momentum Options audience. If you have a question, chances are there are a handful of other subscribers who may have the same one! Thanks, and I look forward to hearing from you!

I have updated our current trades below, so let’s go check the tape.

Momentum Options Play List

Closed Momentum Options Trades for 2016: 44-10 (81%). All trades are dated 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 12:10 p.m. EST.

I hereby disclose that I will be participating in the following trade(s).

 

SPDR S&P Retail ETF (XRT, $41.22, down $0.16)

XRT June 39 puts (XRT160617P00039000, $0.46, up $0.05)

Entry Price: $0.50 (5/16/2016)

Exit Target: $1.00

Return: -8%

Stop Target: None

Action: Support is at $40.50-$40. Resistance is at $41.50-$42.

 

Apple (AAPL, $93.53, down $0.35)

AAPL June 87.50 puts (AAPL160617P00087500, $0.62, up $0.07)

Entry Price: $1.05 (5/12/2016)

Exit Target: $2.10

Return: -45%

Stop Target: $0.30 (Stop Limit)

Action: Fresh support is at $92. Resistance is at $93.50-$94.

You can read my detailed on write-up on AAPL in the May 10 Mid-Market Update.

 

Mylan (MYL, $41.39, up $0.94)

MYL June 35 puts (MYL160520P00035000, $0.26, down $0.01)

Entry Price: $0.60 (5/12/2016)

Exit Target: $1.20

Return: -57%

Stop Target: None

Action: Upper resistance is at $41.50-$42 if $41 holds into the close. Support has moved up to $41-$40.50.

 

Potash (POT, $16.76, up $0.68)

POT June 15 puts (POT160617P00015000, $0.20, down $0.10)

Entry Price: $0.51 (5/9/2016)

Exit Target: $1.05

Return: -61%

Stop Target: None

Action: Resistance is at $16.50-$16.75. Support is at $16-$15.75.

 

Microsoft (MSFT, $50.81, down $1.03)

MSFT June 47 puts (MSFT160617P00047000, $0.18, up $0.03)

Entry Price: $0.62 (5/3/2016)

Exit Target: $1.25

Return: -71%

Stop Target: None

Action: Resistance is at $51.50-$52. Support is at $50-$50.50 and the 200-day moving average.

 

Bank of America (BAC, $14.09, up $0.16)

BAC June 15 calls (BAC160617C00015000, $0.10, flat)

Entry Price: $0.58 (4/28/2016)

Exit Target: $1.20

Return: -83%

Stop Target: $0.05 (Stop Limit)

Action: Resistance is at $14-$14.25. Short-term support is at $14-$13.75 and the 50- and 100-day moving averages. The trade will likely be closed on a drop below $13.50.

Trade on!

Rick Rouse
Editor and Chief Options Strategist
Momentum Options