Dear Momentum Options Subscriber,
As is true with most small-cap stocks, shares can be volatile. Lattice Semiconductor (LSCC, $6.03, down $0.03) has a market cap of $722 million, and the company is expecting to generate revenue north of $460 million this year. Theoretically, a $1 billion buyout offer for LSCC could provide the acquirer with a great company for under $10 a share.
The three-year chart below shows one-year resistance at $7, two-year resistance at $7.50 and three-year resistance at $8-$9. Our LSCC December 7.50 call options have two months before expiration, which gives the trade plenty of time to play out.
With our $0.30 entry price, the breakeven point for the trade is at $7.80, technically, if LSCC shares can clear this level by Dec. 16. A double, or a 100% return, would occur if LSCC shares clear $8.10. Obviously, I would like to see the stock make three-year highs and a run past $8, but the options could expire worthless if shares stay below the $7.50 level through mid-December.
Earnings are due out in early November, and Wall Street is expecting the company to earn $0.06 a share on revenue north of $113 million. The past four quarters have been choppy, as LSCC has posted $0.02 and $0.04 earnings-per-share (EPS) beats as well as $0.01 and $0.03 losses. Overall, the company missed expectations in three of the four quarters, while it matched estimates in the other.
The average EPS estimate for this quarter is $0.06, while the high estimate is $0.07 and the low estimate is $0.05. I don’t believe the company will miss estimates this time, and back-to-back profitable quarters could signal that this is a “turnaround story.”
There was some surprise when it was discovered that Lattice has a chip in the iPhone 7 — a field programmable gate array, or FPGA. Given the successful launch of the iPhone 7 and Samsung’s recent woes, Lattice may get a revenue boost in the coming quarters.
Given the technical setup and improving fundamentals, LSCC seems to be an undervalued stock at current levels, which is why we went long this week with bullish call options.
Turning to the broader market, today’s action has been relieving, as the bulls have controlled the action for much of the session. However, the opening run to resistance faded by mid-day, and a positive close is still in jeopardy.
The Dow is currently higher by 82 points to 18,181, while the S&P 500 is gaining 5 points to 2,137. The Nasdaq is up 7 points to 5,221, and the Russell 2000 is down 2 points to 1,213.
I’m not a big fan of opening new trades on a Friday, but I might take action ahead of the close if support looks like it is going to hold. There could be another “gap-up” on Monday if the bulls can stay afloat today, and that could be a sign that higher highs and a return to all-time highs by month’s end are in store.
In the meantime, I have updated our current trades below, so let’s get to them. Stay close to your email inboxes or look for a possible SMS text message alert in case I take action. If you don’t hear from me by 3:30 p.m. EST, however, have a great and safe weekend.
Momentum Options Play List
Closed Momentum Options Trades for 2016: 74-28 (73%). 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 2:30 p.m. EST.
I hereby disclose that I will be participating in the following trade(s).
PowerShares QQQ ETF (QQQ, $117.24, up $0.24)
QQQ November 120 calls (QQQ161118C00120000, $0.99, up $0.05)
Entry Price: $0.99 (10/13/2016)
Exit Target: $2.00
Stop Target: None
Action: Resistance is at $118-$118.50. Support is at $116.00.
Lattice Semiconductor (LSCC, $6.03, down $0.03)
LSCC December 7.50 calls (LSCC161216C00007500, $0.25, down $0.05)
Entry Price: $0.30 (10/12/2016)
Exit Target: $0.60-$0.90
Stop Target: None
Action: Near-term support is at $6.00 and the 50-day moving average. Resistance is at $6.50-$6.60.
Apple (AAPL, $117.63, up $0.65)
AAPL November 125 calls (AAPL161118C00125000, $0.93, flat)
Entry Price: $1.10 (10/11/2016)
Exit Target: $2.20
Stop Target: None
Action: Resistance is at $118.75-$119. Support is at $116-$115.
Finisar (FNSR, $28.96, down $0.36)
FNSR November 31 calls (FNSR161118C00031000, $0.66, down $0.03)
Entry Price: $1.28 (10/10/2016)
Exit Target: $2.60
Stop Target: $0.30 (Stop Limit)
Action: Support is at $29-$28.75. Resistance is at $29-$29.25.
Viavi Solutions (VIAV, $7.30, up $0.02)
VIAV December 8 calls (VIAV161216C00008000, $0.17, flat)
Entry Price: $0.51 (8/19/2016)
Exit Target: $1.05
Stop Target: $0.05 (Stop Limit)
Action: Support is at $7.25-$7.15. Resistance is at $7.45-$7.50.
Editor and Chief Options Strategist