Dear Momentum Options Subscriber,
Accounting scandals never make for good headlines for a publicly traded company or its shareholders, as both sides suffer the consequences. This type of news hits the tape every now and then, but an accounting probe on a momentum stock that is heading into an earnings announcement can compound the situation.
Unfortunately, the negative spotlight is focused on Hain Celestial Group (HAIN) today after the company delayed its results.
Shares had been mired in two tight trading ranges since early May following the breakout that took the stock from $42 to $50. The six-week action afterwards between $50 and $48 was followed by a pop past $53 before a nasty backtest to $46.
The run to $54 in mid-July was mostly the result of M&A chatter, as some traders were throwing darts as to who the next buyout candidate would be. I don’t always follow earnings announcements, but I wish I had seen the technical setup heading into this one.
Earnings reports are tricky to trade, but it is good to know a stock’s story and the fundamentals nonetheless, which can help with bullish or bearish setups. However, the trading range was the main sign that made me feel as though the stock would make a rather large move today.
I often say that the longer a stock is stuck in a trading range, the bigger the move will be once earnings or news are released. Wall Street was looking for $0.60 a share on revenue of $7.66 million for HAIN. Another dead giveaway that HAIN shares would struggle today was the fact that the company had reported flat results during three of the previous four quarters. While an earnings beat of $0.03 was sandwiched in between, these uninspiring numbers would have made it hard to trust that the company would hit it out of the park with their latest results.
On the flip side, going “short” on a rumored takeover target is always hard to do even if you know that earnings might come in flat or possibly miss. Given the indecision to go long or short, a “strangle” option trade would have been a goldmine.
The HAIN September 55 calls (HAIN160916C00055000, $0.20, down $1.90) are down 90% from yesterday’s close at $2.10. The good news is that the HAIN September 50 puts (HAIN160916P00050000, $10.80, up $9.20) are zooming nearly 580% from Monday’s price of $1.60.
The two aforementioned options, purchased together, would have cost $3.70 going into the trade and would have easily returned a nice triple-digit profit despite the sting of the calls likely expiring worthless.
Moving on to the broader market, futures were showing a slightly weak pullback on the open, and the Dow is now lower by 62 points to 18,573, while the S&P 500 is declining 8 points to 2,182. The Nasdaq is pulling back 21 points to 5,240, and the Russell 2000 is slipping 7 points to 1,234.
There are a couple of earnings trades I’m looking at currently for later in the week, and I’m still hopeful that we can get into a new position this afternoon. For now, let’s go check on the current action.
Momentum Options Play List
Closed Momentum Options Trades for 2016: 61-22 (74%). 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 1:30 p.m. EST.
I hereby disclose that I will be participating in the following trade(s).
MGM Resorts International (MGM, $24.51, down $0.33)
MGM September 25 calls (MGM160916C00025000, $0.46, down $0.10)
Entry Price: $0.70 (8/8/2016)
Exit Target: $1.40
Stop Target: None
Action: Support is at $24.50-$24.25. Resistance is at $24.75-$25.
Bank of America (BAC, $15.11, up $0.09)
BAC September 15 calls (BAC160916C00015000, $0.42, up $0.06)
Entry Price: $0.50 (8/8/2016)
Exit Target: $1.00
Stop Target: None
Action: Short-term resistance is at $15-$15.25. Support is at $14.75-$14.50.
Rambus (RMBS, $13.57, down $0.15)
RMBS September 14 calls (RMBS160916C00014000, $0.22, down $0.13)
Entry Price: $0.40 (8/1/2016)
Exit Target: $0.80
Stop Target: None
Action: Support is at $13.50-$13.25. Resistance is at $13.75-$14.
Viavi Solutions (VIAV, $7.61, up $0.07)
VIAV September 7 calls (VIAV160916C00007000, $0.68, up $0.04)
Entry Price: $0.55 (6/23/2016)
Exit Target: $1.10
Stop Target: $0.57 (Stop Limit)
Action: Resistance is at $7.75-$8. Support is at $7.25.
Editor and Chief Options Strategist