Dear Momentum Options Subscriber,

Alcoa (AA, $9.21, down $0.34) shares tend to trend either higher or lower into the company’s earnings announcement and, while a nice pop usually occurs afterwards, the action after the news can be counterproductive depending on the results. The company has topped estimates during the past two quarters by $0.05 and $0.02, respectively, but it missed by $0.06 and $0.03 during the two previous quarters. This makes an earnings trade in the name risky.

Analysts are expecting Alcoa to report a profit of $0.10 per share on $5.2 billion in revenue next Monday, after the close. The high estimate is at $0.13 on sales of $5.62 billion, while the low estimate has the company earning $0.06 on revenue of $4.88 billion. This could equate to a $0.03 beat or $0.04 miss. Given the current market volatility, shares could move 8% or more.

The AA July 9 calls (AA160715C00009000, $0.50, down $0.20) and the AA July 9.50 puts (AA160715P00009500, $0.51, up $0.15) purchased together would create a “strangle” option trade with a combined premium of roughly $1.00, depending on the bid/ask spreads.

These options expire next Friday, in less than two weeks, which is why it would a difficult directional trade to take on either a call or put. The AA July 9 calls would double if Alcoa shares clear $10, technically, by July 15. The AA July 9.50 puts would return 100% from current levels if shares fall below $8.50 by the same date.

The strangle trade would start producing a profit if shares clear $10 or fall below $8.50 by July 15. A double would occur if Alcoa shares are above $11 or below $7.50 by next Friday. This would require a move of 15%-20% in the stock to make a 100% return on the strangle trade.

The technical outlook for the stock is mixed, as shares are battling the 100-day moving average while staying trapped between the 50- and 200-day moving averages. Resistance is at $9.75-$10. Support is at $9.25-$9. For now, I will likely remain of the sidelines when AA announces.AA

As far as the market, the Dow is down 136 points to 17,812, while the S&P 500 is declining 18 points to 2,084. The Nasdaq is lower by 54 points to 4,808, and the Russell 2000 is off 19 points to 1,137.

I have updated our current trades below, so let’s go check the tape. I’m also looking at another possible New Trade, so stay locked and loaded into the close.

Momentum Options Play List

Closed Momentum Options Trades for 2016: 53-18 (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 1:30 p.m. EST.

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

 

Altria Group (MO, $69.98, up $0.96)

MO August 70 calls (MO160819C00070000, $1.53, up $0.42)

Entry Price: $1.15 (7/5/2016)

Exit Target: $2.30

Return: 33%

Stop Target: None

Action: Shares look poised to clear $70-$72 on a blue-sky breakout. Support is at $68.

 

Cisco Systems (CSCO, $28.41, down $0.39)

CSCO August 29 calls (CSCO160819C00029000, $0.63, down $0.07)

Entry Price: $0.55 (6/30/2016)

Exit Target: $1.10

Return: 15%

Stop Target: $0.58 (Stop Limit)

Action: The Stop Limit at $0.58 is holding thus far. Support is at $28-$27.75 and the 50-day moving average. Resistance is at $28.75-$29.

 

Energous (WATT, $12.49, up $0.33)

WATT August 12.50 calls (WATT160819C00012500, $1.45, up $0.05)

Entry Price: $1.57 (6/28/2016)

Exit Target: $3.15

Return: -8%

Stop Target: $0.75

Action: Resistance is at $12.75-$13. Support is at $11 and the 50-day moving average if $12 fails to hold.

 

Morgan Stanley (MS, $25.00, down $0.92)

MS August 28 calls (MS160819C00028000, $0.21, down $0.14)

Entry Price: $0.79 (6/23/2016)

Exit Target: $1.50

Return: -73%

Stop Target: None

Action: Support is at $25-$24.75. Resistance is at $26.25-$26.50 and the 50-day moving average.

 

Viavi Solutions (VIAV, $6.44, down $0.18)

VIAV September 7 calls (VIAV160916C00007000, $0.28, flat)

Entry Price: $0.55 (6/23/2016)

Exit Target: $1.10

Return: -49%

Stop Target: None

Action: Near-term resistance is at $6.75-$7. Support is at $6.65-$6.50 and the 100- and 50-day moving averages.

Trade on!

Rick Rouse
Editor and Chief Options Strategist
Momentum Options