Dear Momentum Options Subscriber,

Although I don’t take too many earnings trades, our recent win in Rambus (RMBS) went rather well. While we were lucky on some fronts, solid homework and chart work helped the portfolio score another win this week.

Another company I was looking at for a possible trade this week was E*Trade (ETFC, $25.34, up $0.42). The company will announce earnings after Thursday’s close, and the options pits are a little skewed, as the puts are trading at noticeably higher premiums.

For instance, the ETFC August 25 calls (ETFC160819C00025000, $1.07, up $0.20) and the ETFC August 25 puts (ETFC160819P00025000, $2.00, down $0.45) are both “at the money” with shares hovering near the $25 level. What’s noticeable is the nearly $1 price difference between the two.

Analysts are expecting the company to earn $0.38 a share on revenue north of $471 million. The high estimate is at $0.40 a share on revenue of $484 million. The low estimate has E*Trade earning $0.34 a share on revenue of $452 million.

The two aforementioned options have a combined premium of just over $3, which suggests that shares could move 10% or more on the news. To break even on this potential “straddle” option trade, shares would need to be above $28 or below $22, technically, by Aug. 19.

However, I’m more of a directional trader, and the strategy I just discussed on ETFC is too expensive to play at current levels. If the premiums for both options together were under $2, I might have taken action.

As far as the market goes, record highs are in play once again, as the bulls are pushing higher ground. The Dow is up 58 points to 18,617, while the S&P 500 is higher by 11 points to 2,175. The Nasdaq is advancing 61 points to 5,098, and the Russell 2000 is gaining 10 points to 1,211.

I’m more bullish than bearish on ETFC, and the chart is also showing that a bullish run to $26 or higher could be in the cards on a beat-and-raise quarter. I could take action ahead of the close as I ponder the thought, so stay locked and loaded. In the meantime, let’s check out our current trades.

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 2:20 p.m. EST.

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

 

MGM Resorts International (MGM, $23.45, up $0.30)

MGM August 24 calls (MGM160819C00024000, $0.62, up $0.07)

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

Exit Target: $1.50

Return: -16%

Stop Target: None

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

 

Flextronics International (FLEX, $13.19, up $0.27)

FLEX August 13 calls (FLEX160819C00013000, $0.56, up $0.10)

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

Exit Target: $1.00

Return: 27%

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, $24.03, up $0.17)

GDOT August 25 calls (GDOT160819C00025000, $0.80, flat)

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

Exit Target: $1.60

Return: 0%

Stop Target: None

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

 

Energous (WATT, $11.78, down $0.07)

WATT August 12.50 calls (WATT160819C00012500, $0.65, down $0.15)

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

Exit Target: $3.15

Return: -59%

Stop Target: $0.50 (Stop Limit)

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

 

Viavi Solutions (VIAV, $7.00, up $0.05)

VIAV September 7 calls (VIAV160916C00007000, $0.40, flat)

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