Dear Momentum Options Subscriber,
There are a number of earnings announcements scheduled for Thursday that look primed for possible trades, but one of the more interesting stocks I have been watching recently is Autodesk (ADSK, $63.36, down $0.10), as shares look ready for a breakout on a technical basis.
The 52-week high is at $65.78, and the 50- and 100-day major moving averages are in solid uptrends. The 200-day moving average has leveled out after a steady rise that started in May, but it looks stable.
An earnings beat on both the top and bottom lines, along with raised guidance, could get shares north of $67. An earnings miss, or a wider-than-expected loss, and a cloudy outlook could send shares south of $60. Wall Street is forecasting a loss of $0.14 a share on revenue of $511 million.
The company was profitable in three of the past four quarters and has topped estimates during this time period despite reporting a loss of $0.10 last quarter. The low estimate for the recently ended quarter is for a loss of $0.16, while the high estimate is for a loss of $0.12.
Despite what could be back-to-back quarterly losses for Autodesk, shares have powered higher since bottoming just below $50 in June. The fundamental story makes going long ahead of the news a risky proposition, however, despite the strong technical setup.
To offset some of the risk, a “straddle” option trade could be used to play the event, but shares will need to make a major move for the trade to make money. The ADSK September 67.50 calls (ADSK160916C00067500, $0.80, down $0.05) and the ADSK September 60 puts (ADSK160916P00060000, $0.95, up $0.05) are pricing in a move of up to 5% in the stock.
Here is how the trade would make money. The cost to buy both aforementioned options would be $1.75, which would put the breakeven points at $69.25 and $58.25, technically, by mid-September. A 100% return would be achieved if shares clear $71 or fall below $57 by mid-September.
The options have over three weeks before they expire, which is why this trade is a tempting one to take. However, if shares stay between $69.25 and $58.25, potential losses could be realized as premiums start to erode. The risk will likely keep me on the sidelines ahead of the announcement, but there could be a trade in ADSK afterwards once the dust settles.
Turning our focus to today’s market, the bulls are trying to keep yesterday’s momentum, but the fade into Tuesday’s close doesn’t bode well for them.
The Dow is currently down 49 points to 18,497, while the S&P 500 is lower by 5 points to 2,181. The Nasdaq is off 10 points to 5,249, and the Russell 2000 is giving back 2 points to 1,246.
I have updated our current trades below, so let’s go check the tape.
Momentum Options Play List
Closed Momentum Options Trades for 2016: 63-22 (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 12:15 p.m. EST.
I hereby disclose that I will be participating in the following trade(s).
Energous (WATT, $16.76, up $0.92)
WATT November 17.50 calls (WATT161118C00017500, $2.05, up $0.50)
Entry Price: $1.15 (8/22/2016)
Exit Target: $2.30
Stop Target: $1.20, raise to $1.40 (Stop Limit)
Action: Raise the Stop Limit from $1.20 to $1.40. Today’s low on the calls has been $1.65.
Shares have traded to a fresh 52-week high of $17.41 today. Near-term resistance is at $17.50-$18 on continued momentum. Support is at $15.
Vuzix (VUZI, $7.34, up $0.02)
VUZI October 7.50 calls (VUZI161021C00007500, $0.95, down $0.05)
Entry Price: $0.95 (8/23/2016)
Exit Target: $1.90
Stop Target: None
Action: Resistance is at $7.50-$8. Support is at $7.25 and the 50-day moving average, but there is risk to $7 on continued closes below this level.
Viavi Solutions (VIAV, $7.83, flat)
VIAV December 8 calls (VIAV161216C00008000, $0.51, flat)
Entry Price: $0.51 (8/19/2016)
Exit Target: $1.05
Stop Target: None
Action: Resistance is at $8. Support is at $7.50.
MGM Resorts International (MGM, $24.05, down $0.26)
MGM September 25 calls (MGM160916C00025000, $0.23, down $0.05)
Entry Price: $0.70 (8/8/2016)
Exit Target: $1.40
Stop Target: $0.15 (Stop Limit)
Action: Support is at $24-$23.75. Resistance is at $24.50-$24.75.
Bank of America (BAC, $15.43, up $0.08)
BAC September 15 calls (BAC160916C00015000, $0.58, up $0.07)
Entry Price: $0.50 (8/8/2016)
Exit Target: $1.00
Stop Target: None
Action: Near-term resistance is at $15.25-$15.50. Support is at $15-$14.75.
Rambus (RMBS, $13.84, up $0.06)
RMBS September 14 calls (RMBS160916C00014000, $0.28, up $0.03)
Entry Price: $0.40 (8/1/2016)
Exit Target: $0.80
Stop Target: None
Action: Resistance is at $14. Support is at $13.50-$13.25.
Editor and Chief Options Strategist