Dear Momentum Options Subscriber,

The results of second-quarter earnings season will likely determine whether the bulls can continue their momentum or if it will be derailed by the bears as more heavily weighted stocks lose their steam. While some behemoths have reported better-than-expected numbers, other high-profile companies have disappointed.

Netflix (NFLX, $85.19, down $13.62) reported a mixed quarter after Monday’s close, as the company beat expectations by $0.07 but missed on revenue numbers. To complicate matters, the company said it sees the current-quarter figure coming in at $0.05 a share versus estimates for $0.07 a share. Additionally, revenue estimates from management of $2.155 billion fell shy of forecasts for $2.26 billion.

I often mention that earnings trades are tricky, but they are also fun to take. Bearish traders that purchased the NFLX August 90 puts (NFLX160819P00090000, $6.55, up $4.15) have made bank, as they are up a whopping 166% from yesterday’s close of $2.50.

Bullish traders that purchased or already owned the NFLX August 90 calls (NFLX160819C00090000, $1.60, down $9.85) are feeling the pain, as these options are down a blistering 86%. While it is too early to buy these call options right now, aggressive traders could keep them on their watch lists as a possible trade if shares rebound in the coming days or weeks.

There was heavy call-buying in the NFLX $100 and $105 strike prices yesterday, but these options are too far out-of-the-money to consider as an investment with the major moving averages trying to roll over. However, a backtest to $95-$97 can’t be ruled out.

The NFLX August 85 calls (NFLX160819C00085000, $3.50, down $11.50) took a pounding as well, but they are also worth eyeballing as long as the $85 level holds for a few days. This level held in May and June to form a “double bottom,” as you can see from the chart below. Both times, a strong rebound occurred within 5-10 trading days to get the low to mid-$90s back in play.NFLX

The market cap for NFLX was north of $42 billion going into the announcement, and it currently stands just under $37 billion. With the stock down 15% today, there will be takeover chatter concerning the company in the coming weeks, but I doubt a larger conglomerate makes an offer anytime soon.

As far as the market goes, the bulls are trying to push higher highs, but they have struggled to reach positive territory as we make the turn into the final hours of trading. The Dow is down 10 points to 18,522, while the S&P 500 is slipping 6 points to 2,160. The Nasdaq is lower by 18 points to 5,037, and the Russell 2000 is off 4 points to 1,203.

I have updated our current positions below, but stay locked and loaded into the close, as I’m working on a possible New Trade.

Momentum Options Play List

Closed Momentum Options Trades for 2016: 59-18 (77%). 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 12:40 p.m. EST.

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

 

MGM Resorts International (MGM, $23.23, down $0.16)

MGM August 24 calls (MGM160819C00024000, $0.55, down $0.10)

Entry Price: $0.74 (7/15/2016)

Exit Target: $1.50

Return: -26%

Stop Target: None

Action: Support is at $23.25-$23 and the 50-day moving average. Near-term resistance is at $23.75-$24.

 

Flextronics International (FLEX, $13.00, up $0.13)

FLEX August 13 calls (FLEX160819C00013000, $0.51, up $0.11)

Entry Price: $0.44 (7/14/2016)

Exit Target: $1.00

Return: 16%

Stop Target: None

Action: Resistance is at $13-$13.25. The 52-week high is at $13.23. Support is at $12.75-$12.50.

 

Green Dot (GDOT, $23.76, down $0.06)

GDOT August 25 calls (GDOT160819C00025000, $0.70, down $0.09)

Entry Price: $0.80 (7/7/2016)

Exit Target: $1.60

Return: -13%

Stop Target: None

Action: Support is at $23.50-$23. Near-term resistance is at $24.25-$24.50.

 

Energous (WATT, $11.99, up $0.07)

WATT August 12.50 calls (WATT160819C00012500, $0.80, flat)

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

Exit Target: $3.15

Return: -49%

Stop Target: $0.50 (Stop Limit)

Action: Resistance is at $12-$12.25. Support is at $11.75-$11.50.

 

Viavi Solutions (VIAV, $7.00, down $0.03)

VIAV September 7 calls (VIAV160916C00007000, $0.40, up $0.03)

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

Exit Target: $1.10

Return: -27%

Stop Target: None

Action: Resistance is at $7.15-$7.25. Support is at $6.80-$6.75.

Trade on!

Rick Rouse
Editor and Chief Options Strategist
Momentum Options