Dear Momentum Options Subscriber,
Smith & Wesson Holding Corporation (SWHC, $28.14, down $1.44) will announce earnings after the close tomorrow, and shares are likely to make a significant move in extended trading on Thursday and into Friday’s open. Today’s 5% pullback could be a sign of lower lows to come, or it could be a buying opportunity ahead of the announcement.
Wall Street is expecting a profit of $0.53 a share on revenue north of $198 million. The high earnings and revenue estimates are at $0.60 a share on sales of $208 million, while the low estimates are at $0.48 on revenue of $190 million. The company has topped estimates during the past four quarters by $0.12, $0.20, $0.05 and $0.10, respectively.
Given the current political rhetoric surrounding the industry, it’s likely that sales are still strong and that another earnings beat could be coming. I heard in various crowd conversations that gun sales are booming, as people continue to arm themselves given the uncertainty over the future of the 2nd amendment.
With shares near the 52-week peak of $31.19, it would be hard to bet against the company. On the other hand, an earnings miss could have a big effect on shares and send them tumbling.
Current resistance is at $30-$30.50, but a close above the latter could get fresh highs in play. Support is at $28.50 and the 50-day moving average. There is risk to $26-$25.50 and the 100-day moving average on a shockingly bad quarter.
The SWHC September 30 calls (SWHC160916C00030000, $0.75, down $0.45) could be targeted by bullish traders expecting a run past $30 by Sept. 16. If $31.50 is cleared by mid-September, these call options will double from current levels. The breakeven level is $30.75.
Bearish traders could target the SWHC September 26 puts (SWHC160916P00026000, $0.70, up $0.45) on an earnings miss or lowered outlook. These put options would double from current levels if shares fall below $24.60. They are up a whopping 180% today after closing Tuesday’s session at a quarter.
While I’m more bullish than bearish on SWHC, I’m also wary of a “sell-the-news” event, even with a slight earnings beat. Both aforementioned options purchased together would cost $1.45 at current levels, and the combination trade could be used by conservative traders. The breakeven points would be if SWHC shares clear $31.45 or fall below $24.55, technically, by mid-September.
I’m tempted to go long with SWHC, but, at the current time, I have other trades I like better that don’t carry any earnings risk.
The Dow is currently down 112 points to 18,341, while the S&P 500 is lower by 13 points to 2,162. The Nasdaq is off 28 points to 5,194, and the Russell 2000 is dropping 10 points to 1,235.
On that note, I have a Profit Alert for Bank of America (BAC) that I want to cover. I could also have a New Trade ahead of the closing bell, so stay locked and loaded!
Momentum Options Play List
Closed Momentum Options Trades for 2016: 64-23 (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 12:30 p.m. EST.
I hereby disclose that I will be participating in the following trade(s).
Bank of America (BAC, $15.89, down $0.23)
BAC September 15 calls (BAC160916C00015000, $1.00, down $0.18)
Entry Price: $0.50 (8/8/2016)
Exit Target: $1.25 (closed first half at $0.63 on 8/25/2016)
Stop Target: $1.05 (Stop Limit)
Action: The Stop Limit at $1.05 on the second half of the trade has triggered, and we are now out of the entire position with an average gain of 68%.
Resistance is now at $16.25-$16.50. Support has moved up to $16-$15.75.
Nucor (NUE, $48.50, down $0.10)
NUE October 52.50 calls (NUE161021C00052500, $0.46, flat)
Entry Price: $0.63 (8/25/2016)
Exit Target: $1.30
Stop Target: None
Action: Support is at $48.50-$48. Resistance is at $49.50-$50.
Vuzix (VUZI, $8.73, up $0.35)
VUZI October 7.50 calls (VUZI161021C00007500, $1.90, up $0.45)
Entry Price: $0.95 (8/23/2016)
Exit Target: $2.50
Stop Target: $1.25 (Stop Limit)
Action: Today’s peak has reached $8.91. The 52-week high is at $9.30. Resistance is at $8.75-$9. Support is at $8.25-$8.
Energous (WATT, $16.95, down $0.13)
WATT November 17.50 calls (WATT161118C00017500, $2.60, down $0.10)
Entry Price: $1.15 (8/22/2016)
Exit Target: $5.00 (closed first half at $2.50 on 8/29/2016)
Stop Target: $2.10 (Stop Limit)
Action: Support is at $16.75-$16.50, but a close below the latter could trigger our Stop Limit on the second half of the trade. Resistance is at $17-$17.50.
Viavi Solutions (VIAV, $7.73, down $0.10)
VIAV December 8 calls (VIAV161216C00008000, $0.45, down $0.03)
Entry Price: $0.51 (8/19/2016)
Exit Target: $1.05
Stop Target: None
Action: Support is at $7.75-$7.50. Resistance is at $7.85-$8.
Rambus (RMBS, $13.84, down $0.08)
RMBS September 14 calls (RMBS160916C00014000, $0.25, down $0.04)
Entry Price: $0.40 (8/1/2016)
Exit Target: $0.80
Stop Target: None
Action: Support is at $13.75-$13.50. Resistance is at $14-$14.25.
Editor and Chief Options Strategist