Dear Momentum Options Subscriber,
Although earnings season is still a few weeks away, it is always good to look ahead and do some early homework. I normally don’t take too many earnings trades, and I would like to be out of our current Goodyear Tire & Rubber (GT) trade ahead of its announcement, which is due to be released the last week of October. Nonetheless, I decided to take a look at the company’s numbers.
It isn’t that I don’t like taking earnings trades, but, for them to be successful, you have to prepare for an earnings beat or miss along with the company’s outlook, gross margins, dividend growth or cuts and other tedious factors that could cause a stock to pop or drop.
As far as GT, the company has beaten expectations during the past four quarters by $0.13, $0.01, $0.18 and $0.02, respectively. Current estimates have the company earning a profit of $1.19 a share on revenue of $4.02 billion.
The high estimate is pegged at $1.28 a share on sales of $4.19 billion. The lowball number has penciled in earnings of $1.12 a share on revenue of $3.9 billion. This could mean a $0.09 headline beat or a $0.07 miss.
While I like the fundamental setup for the company, the technical setup on the stock is what attracted me to play the bullish call option. I showed the near-term chart for GT in this morning’s Pre-Market Update, and the two-year chart below is just as bullish. Resistance is at $33-$33.25, with a clear shot at $35 on a move above the latter. Longer-term support is at $31-$30 on continued closes below $32.
I would like to see shares rally to the mid-$30s ahead of GT’s earnings announcement. This would ensure a triple-digit return for our current trade, as the GT October 33 calls would be at least $2 in the money if shares clear $35 by Oct. 21.
Turning our focus to the broader market, futures were slightly lower in overnight trading, which led to a pullback at today’s open. The losses are sticking, but near-term support levels are holding.
The Dow is currently down 136 points to 18,124, while the S&P 500 is lower by 15 points to 2,149. The Nasdaq is off 43 points to 5,262, and the Russell 2000 is falling 7 points to 1,247.
I have updated our current trades below, so let’s go check the action. I could also have a New Trade ahead of the closing bell, so stay locked and loaded in case I decide to take action.
Momentum Options Play List
Closed Momentum Options Trades for 2016: 72-24 (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 1:20 p.m. EST.
I hereby disclose that I will be participating in the following trade(s).
Goodyear Tire & Rubber (GT, $31.73, down $0.57)
GT October 33 calls (GT161021C00033000, $0.45, down $0.15)
Entry Price: $0.75 (9/22/2016)
Exit Target: $1.50
Stop Target: None
Action: Support is at $31.75-$31.50. Near-term resistance is at $32.
Finisar (FNSR, $29.15, down $0.07)
FNSR November 30 calls (FNSR161118C00030000, $1.14, down $0.01)
Entry Price: $1.20 (9/22/2016)
Exit Target: $2.40
Stop Target: $0.60
Action: Support is at $29-$28.75. Near-term resistance is at $29.25-$29.50. The 52-week peak is at $29.40.
You can read my detailed write-up for FNSR in last Thursday’s Mid-Market Update.
Kroger (KR, $30.15, down $0.30)
KR October 30 puts (KR161021P00030000, $0.66, up $0.12)
Entry Price: $0.78 (9/7/2016)
Exit Target: $1.60 (Limit Order on first half)
Stop Target: $0.20 (Stop Limit)
Action: Support is at $30-$29.50. My near-term target is $28. Resistance is at $30.50-$30.75.
Vuzix (VUZI, $9.08, down $0.08)
VUZI October 10 calls (VUZI161021C00010000, $0.50, up $0.10)
Entry Price: $0.68 (9/7/2016)
Exit Target: $1.40
Stop Target: $0.22 (Stop Limit)
Action: Support is at $8.75-$8.50. Resistance is at $9.25-$9.50.
Viavi Solutions (VIAV, $7.25, down $0.08)
VIAV December 8 calls (VIAV161216C00008000, $0.26, flat)
Entry Price: $0.51 (8/19/2016)
Exit Target: $1.05
Stop Target: $0.15 (Stop Limit)
Action: Support is at $7.25-$7.20, followed by $7 and the 100-day moving average. Resistance is at $7.45-$7.50 and the 50-day moving average.
Editor and Chief Options Strategist