Dear Momentum Options Subscriber,
The bulls were looking to start September off on a good note, as futures were forecasting a strong session throughout the night and into this morning’s open. However, the action weakened as futures turned south just ahead of the bell, and the action is now mixed heading into the second half of trading.
Although September is often labeled as a “dangerous” month for the market, I have covered the best clues to look for so that we’ll be ready when the time comes to possibly go short or get aggressive with put options. We started nibbling on a “short” position earlier this morning with our latest trade in Sotheby’s (BID), but I’m not ready to throw in the towel on the bulls and go full throttle with the bears just yet.
I have also said that I expect higher highs and a possible run to 1,300 on the Russell 2000. Tomorrow’s nonfarm payrolls report should carry significant weight and influence market direction during the upcoming holiday-shortened week and possibly through September. As a reminder, the market is closed next Monday for Labor Day.
With two massive winners this week in Energous (WATT) and Bank of America (BAC), and with Stop Limits in place to protect profits on our other current trades, we could go into the holiday weekend with as little as three or four open positions. Aside from Rambus (RMBS), which is getting a nice bump today, our other trades may stretch into October, November and December.
To say we have done well navigating this frustrating summer trading range would be an understatement, and we are in a perfect position to play the September action no matter what direction the market is headed from here.
The Dow is currently down 11 points to 18,389, while the S&P 500 is falling 3 points to 2,167. The Nasdaq is higher by 8 points to 5,221, and the Russell 2000 is off 2 points to 1,237.
I have updated our current trades below, so let’s go check the action.
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 12:50 p.m. EST.
I hereby disclose that I will be participating in the following trade(s).
Sotheby’s (BID, $39.77, up $0.12)
BID October 37 puts (BID161021P00037000, $1.05, up $0.05)
Entry Price: $1.05 (9/1/2016)
Exit Target: $2.10
Stop Target: None
Action: The Exit Target for the trade is at $2.10, but it is not a Limit Order at this time. There is no Stop Target at this time.
Wednesday’s 2% drop and close below $40 was a bearish signal. Shares recently made a gap higher from $32 to $40 in early August. This was due to better-than-expected “adjusted” earnings of $1.51 a share versus expectations for a profit of $1.05 a share. Revenue of $298 million also came in $7 million higher than the forecast for $291 million.
The headline most analysts missed, however, was that net auction sales declined 16% from the year-ago period, thanks in part to the slippage in the global art market. In the previous quarter, the company missed estimates by $0.12 a share. This followed two previous earnings beats of $0.05 and $0.01 over the past year.
The chart below shows support at $39.50-$39. A close below the latter could get $37-$36 in play. I don’t know if shares will do a total backtest to $34 and the 50-day moving average to fill the gap higher after its earnings report, but, if they do, these options could triple from our entry price. Resistance is at $40-$40.25. I like the trade as long as $41-$41.25 and the 52-week high hold going forward. A move above the latter could force an early exit on the trade.
Nucor (NUE, $49.45, up $0.94)
NUE October 52.50 calls (NUE161021C00052500, $0.60, up $0.13)
Entry Price: $0.63 (8/25/2016)
Exit Target: $1.30
Stop Target: None
Action: Resistance is at $49.50-$50. Support is at $48.50-$48.
Vuzix (VUZI, $8.78, down $0.07)
VUZI October 7.50 calls (VUZI161021C00007500, $1.50, flat)
Entry Price: $0.95 (8/23/2016)
Exit Target: $2.50
Stop Target: $1.25 (Stop Limit)
Action: Shares have traded to a high of $8.95 today. Resistance is at $9. The 52-week peak is at $9.30. My near-term price target is $10+. Support is trying to move up to $8.50-$8.25.
Energous (WATT, $18.15, up $0.15)
WATT November 17.50 calls (WATT161118C00017500, $3.00, down $0.30)
Entry Price: $1.15 (8/22/2016)
Exit Target: $5.00 (closed first half at $2.50 on 8/29/2016)
Stop Target: $2.30 (Stop Limit)
Action: Today’s peak has reached $18.63. Resistance is at $18.25-$18.50. A close above the latter will likely lead to $19-$19.50 and fresh 52-week peaks. Support is at $17-$16.75
Viavi Solutions (VIAV, $7.81, up $0.03)
VIAV December 8 calls (VIAV161216C00008000, $0.49, flat)
Entry Price: $0.51 (8/19/2016)
Exit Target: $1.05
Stop Target: None
Action: Resistance is at $7.85-$8. Support is at $7.75-$7.50.
Rambus (RMBS, $14.36, up $0.54)
RMBS September 14 calls (RMBS160916C00014000, $0.52, up $0.29)
Entry Price: $0.40 (8/1/2016)
Exit Target: $0.80
Stop Target: None
Action: Fresh resistance is at $14.25-$14.50. Support is at $13.75-$13.50.
Editor and Chief Options Strategist