Dear Momentum Options Subscriber,
Companies reporting earning this week face a number of factors in what has been a stormy week or so since the recent market highs. While it was a fun run cashing out bullish call option trades from June through early August, I mentioned this week could be a white-knuckle ride.
One company, I have followed for a couple of years is reporting earnings after Thursday’s close, FireEye (FEYE, $17.36, down $0.74). It has been a publicly traded stock since September 20th, 2013 when shares opened at $40.30, kissed an intraday high of $44.89, while closing at $36.
The three-year chart below shows by early March 2014, shares nearly tapped triple-digits, trading to a high of $97.35. Since then, it was nearly a nasty 75% haircut to $25 that held as a “double-bottom” that year. The stock rebounded to clear double-nickels ($55) by May 2015 before bottoming to a low of $11.35 this year.
My rough math in my head computed a 90% drop from a $100 to $10 that has rebound to $17, or roughly 75%, ahead of earnings. After looking at the aforementioned chart, shares have a shot at clearing $20 or falling back below $15, in my opinion, over the next three month, if not on earnings alone.
The company has lost money every single year since becoming publicly traded. This year won’t be any different. Needless to say, this will be a huge quarter for FireEye by the headline number alone after Thursday’s close. This will impact shares in after-hours trading and on Friday.
Investors that have bought shares north of $50 obviously feel like they are “still holding the bag” and will feel continued relief if shares can actually rally past $20. This will offer hope for higher highs the rest of the year, but any gains might be capped at $25 and the previous “double bottom” I talked about on a technical basis.
FireEye will have to announce a “surprise” quarter for shares to keep their recent momentum, but analysts have penciled-in a loss of 39 cents a share. Revenue is expected to be north of $181 million.
Some of the scars investors may not remember from the free-fall from roughly a $100 to nearly $10 debacle was the fact upper management was cashing out shares near their peaks.
These are the skeletons I don’t like in FEYE’s closet in addition to the fact that they are a money-losing company. This is the “fundamental” aspect I look at when option-trading.
Bullish traders looking for that giddy-up and go for shares to push past $20 can gamble on the FEYE August 19 calls (FEYE160819C00019000, $0.67, down $0.05). These options would double if shares clear $20.25 over the next 16 days.
Bearish traders looking for a stock beat down below $15 can target the FEYE August 15 puts (FEYE160819P00015000, $0.35, up $0.05). These options would double from current levels if shares fall below $14.30, technically, by August 19th’s close.
I will be sitting on the sidelines as far as FEYE, but I will keep shares on my Watch List for a possible post-earnings trade next week.
Heading into the second half of trading, the Dow is higher by 22 points to 18,336 while the S&P 500 is gaining 2 points to 2,159. The Nasdaq is adding 7 points to 5,145 and the Russell 2000 is up a 6-pack points to 1,209.
I have updated our current trades so let’s go check the tape!
Momentum Options Play List
Closed Momentum Options Trades for 2016: 61-20 (75%). All trades are dated and time stamped 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 12:55 p.m. EST.
I hereby disclose that I will be participating in the following trade(s).
Rambus (RMBS, $13.39, up $0.23)
RMBS September 14 calls (RMBS160916C00014000, $0.25, up $0.02)
Entry Price: $0.40 (8/1/2016)
Exit Target: $0.80
Stop Target: None
Action: Resistance is at $13.25-$13.50. Support is at $13.25-$13.
Vuzix (VUZI, $7.91, up $0.27)
September 10 calls (VUZI160916C00010000, $0.55, up $0.03)
Entry Price: $0.97 (7/27/2016)
Exit Target: $2.00
Stop Target: None
Action: Resistance is at $8. Support is at $7.50.
Green Dot (GDOT, $23.49, down $0.13)
GDOT August 25 calls (GDOT160819C00025000, $0.60, up $0.11)
Entry Price: $0.80 (7/7/2016)
Exit Target: $1.60
Stop Target: None
Action: Support is at $23.75-$23.50. Resistance is at $24-$24.25. Earnings are due out after Thursday’s close.
Energous (WATT, $12.38, down $0.01)
WATT August 12.50 calls (WATT160819C00012500, $0.80, flat)
Entry Price: $1.57 (6/28/2016)
Exit Target: $3.15
Stop Target: $0.50 (Stop Limit)
Action: The Stop Limit at $0.50 tripped on today’s stock drop to $12.01 at the open.
Viavi Solutions (VIAV, $7.15, up $0.14)
VIAV September 7 calls (VIAV160916C00007000, $0.42, flat)
Entry Price: $0.55 (6/23/2016)
Exit Target: $1.10
Stop Target: None
Action: Resistance is at $7.25. Support is at $7 with $6.90-$6.85 and the 50-day moving average serving as backup. Earnings are due out August 11th.
Editor and Chief Options Strategist