Dear Momentum Options Subscriber,
Shares of Carnival (CCL, $49.01, up $0.36) are trying to rally ahead of the company’s earnings announcement next Tuesday, June 28. The option pits are pricing in a move of up to 7% after the results are released, and the technical setup might provide a short-term opportunity for aggressive traders.
Wall Street is expecting a profit of $0.39 a share on revenue of $3.68 billion. The high estimate for earnings is $0.43 a share, while the lowball estimate is at $0.36 a share. Revenues are pegged to come in at $3.75 billion on the high side and $3.64 billion on the low side.
The company beat estimates during the past four quarters by $0.07, $0.08, $0.12 and $0.09, respectively. Revenues have come in higher than expectations during three of the past four quarters.
The technical setup shows a mixed picture, as all of the major moving averages in play. The 50-day moving average recently fell below the 200-day moving average to form a “death cross,” which is usually a bearish development. However, both are flattening out, and the 100-day moving average is trying to turn higher.
The CCL July 49 calls (CCL160715C00049000, $1.65, up $0.23) are active today, as over 1,100 contracts have traded. If shares trade past $52.30, technically, by mid-July, these call options will easily double from current levels.
The CCL July 49 puts (CCL160715P00049000, $1.60, down $0.15) have traded thinly today on very little volume. These options would double from current levels if shares fall below $45.80, technically, by July 15.
Both options purchased together would create a “straddle” option trade for a combined cost of $3.25. The breakeven points for the trade would $52.25 and $45.75. A double would occur if shares trade past $55.50 or trade below $42.50, technically, by the middle of July.
The aforementioned straddle option trade would require a double-digit percentage move in the stock to make a nice profit. Although this is possible, it is asking a lot, which is why I would shy away from this type of strategy for this particular play.
A directional trade makes more sense, but figuring out how shares will react makes this strategy much more risky. The trend of the earnings beats are hard to ignore, but analysts have soured on the stock in recent months heading into next week’s event.
If shares can clear $49.50-$50 over the next few days, perhaps it would be a sign that a bullish breakout is coming. If these levels, along with the 200-day moving average, hold for the rest of the week, it could be a clue that resistance will hold.
As you can see, I’m watching the action intensely to see if there is an opportunity for us to take a quick trade. However, at this time, I want to remain on the sidelines until we get a clearer picture as to how shares could react. If we don’t make a trade on the name ahead of earnings, I could have one afterwards, so stay tuned.
As far as the market goes, the action has been choppy today, and the bears are at the wheel heading into the last few hours of trading.
The Dow is lower by 48 points to 17,781, while the S&P 500 is down 3 points to 2,085. The Nasdaq is declining 8 points to 4,835, and the Russell 2000 is off fractionally to 1,153.
I have updated our current trades below, so let’s go check the tape.
Momentum Options Play List
Closed Momentum Options Trades for 2016: 49-16 (75%). 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 1:25 p.m. EST.
I hereby disclose that I will be participating in the following trade(s).
iRobot (IRBT, $36.37, down $0.28)
IRBT July 38 calls (IRBT160715C00038000, $0.30, down $0.16)
Entry Price: $0.55 (6/20/2016)
Exit Target: $1.10
Stop Target: None
Action: Support is at $36-$35 and the 100-day moving average on a move below $36.50-$36.40. Resistance is at $37-$37.25 and the 50-day moving average.
Energous (WATT, $11.15, down $0.07)
WATT August 12.50 calls (WATT160819C00012500, $1.25, flat)
Entry Price: $1.06 (6/16/2016)
Exit Target: $2.00-$2.50
Stop Target: $1.10 (Stop Limit)
Action: Support is at $10.50-$10 if $11 fails to hold. Resistance is at $11.25-$11.50.
Viavi Solutions (VIAV, $7.02, down $0.11)
VIAV September 7 calls (VIAV160916C00007000, $0.56, down $0.02)
Entry Price: $0.48 (6/16/2016)
Exit Target: $1.00
Stop Target: $0.50 (Stop Limit)
Action: Support is at $6.80-$6.75. Near-term resistance is at $7-$7.25. The 52-week high is at $7.38.
Microsoft (MSFT, $51.09, down $0.10)
MSFT July 48 puts (MSFT160715P00048000, $0.29, up $0.04)
Entry Price: $0.71 (6/16/2016)
Exit Target: $1.45
Stop Target: None
Action: Support is at $50-49.50. Resistance is at $51-$51.50.
Inovio Pharmaceuticals (INO, $10.29, down $.97)
INO July 12 calls (INO160715C00012000, $0.20, down $0.25)
Entry Price: $0.80 (6/1/2016)
Exit Target: $1.60
Stop Target: None
Action: Resistance is at $11.50-$11.75. The 52-week high is at $11.69. Support is at $11-$10.75.
Editor and Chief Options Strategist