Dear Momentum Options Subscriber,
Shares of Six Flags Entertainment (SIX) could make a major move on Wednesday, as the company is scheduled to report earnings before the opening bell. The technical setup is bearish, and earnings have been choppy over the past year.
Current forecasts have Six Flags posting a profit of $1.66 on revenue of just over $587 million for the recently ended quarter. The company missed expectations by $0.06 last time out following $0.15 and $0.05 earnings beats. In the year-ago period, earnings fell $0.02 shy of forecasts.
With shares near multi-month lows but holding $50 earlier this month, I’m pricing in a 5%-10% move in the stock. This could push shares past $52.50-$55 or below $47.50-$45 and the September low of $47.61.
A “death cross” formed in early September, with the 50-day moving average falling below the 200-day moving average. This is usually a bearish development, but shares managed a run towards double nickels ($55) earlier this month. The 50-day moving average is trying to level out, but the 100-day moving average is also on track to fall below the 200-day moving average.
The company pays a whopping 4.5% dividend, or $2.32 annualized, and recently paid out its quarterly dividend of $0.58 in early September. The dividend yield has attracted investors to the beaten down stock, which has fallen from a 52-week peak of $62.69. The 52-week low is at $45.24.
SeaWorld Entertainment (SEAS) recently slashed its dividend from $0.21 to a dime and said it would suspend future payments. I’m not saying that Six Flags shareholders are in any danger of future dividend cuts, but it is something to watch for going forward, especially if the company misses estimates.
I have a feeling that the summer heatwave may have earnings coming in a penny or two shy of expectations, which is why I’m cautious on the stock heading into the announcement. However, I do like the company’s long-term growth plans and the current slate of virtual reality (VR) games due out this year and next.
Bearish traders could target the SIX November 50 puts (SIX161118P00050000, $1.55, up $0.55) for a drop in the stock below $48-$47, and that is what we did with today’s recommendation. A close below the latter would easily double these put options from current levels, as they would be at least $3 in the money.
Bullish traders could target the SIX November 55 calls (SIX161118C00055000, $0.50, down $0.10) for a surprise earnings beat and possibly better-than-expected revenues. These call options would double from current levels if shares trade above $56, technically, by Nov. 18.
The two aforementioned call and put options, purchased together, would create a strangle option trade with a price point of roughly $2.00. The trade would double if shares trade above $59 or below $46 by mid-November.
As mentioned, I have chosen put options without call option protection, so I wanted to explain the risk/reward for our current trade going into the earnings announcement. If shares hold $50 into mid-November, the SIX November 50 puts will expire worthless.
Heading into the second half of the action, the Dow is lower by 60 points to 18,162, while the S&P 500 is off 8 points to 2,143. The Nasdaq is down 26 points to 5,283, and the Russell 2000 is slipping 11 points to 1,215.
I have updated the parameters of our latest trade in Six Flags Entertainment (SIX) below, so let’s take a look. I also issued a partial profit alert for our position in the PowerShares QQQ ETF (QQQ), so be sure to check that out now if you haven’t done so already.
Momentum Options Play List
Closed Momentum Options Trades for 2016: 75-28 (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 12:45 p.m. EST.
I hereby disclose that I will be participating in the following trade(s).
Six Flags Entertainment (SIX, $50.82, down $0.93)
SIX November 50 puts (SIX161118P00050000, $1.55, up $0.55)
Entry Price: $1.46 (10/25/2016)
Exit Target: $3.00 (Limit Order on first half)
Stop Target: None
Action: Set a Limit Order to sell to close the first half of the trade at $3.00. There is no Stop Target at this time due to the earnings announcement.
We plan to hold the trade through earnings, but feel free to exit the trade at your discretion if you do not feel comfortable taking the headline risk.
PowerShares QQQ ETF (QQQ, $119.13, down $0.44)
QQQ November 120 calls (QQQ161118C00120000, $1.30, down $0.12)
Entry Price: $0.99 (10/13/2016)
Exit Target: $2.00 (Limit Order on first half)
Stop Target: $1.10 (Stop Limit)
Action: Per the earlier alert, we sold to close the first half of the position this afternoon. I will update the parameters for the second half of the trade in tomorrow’s Pre-Market Update.
Support is at $118. Resistance is at $119.50-$120.
Lattice Semiconductor (LSCC, $6.50, down $0.06)
LSCC December 7.50 calls (LSCC161216C00007500, $0.30, up $0.06)
Entry Price: $0.30 (10/12/2016)
Exit Target: $0.60-$0.90
Stop Target: None
Action: LSCC has reached a peak of $6.62 today. Near-term resistance is at $6.60-$6.75. Support is at $6.30-$6.25 and the 50-day moving average on a close back below $6.50.
Apple (AAPL, $117.51, down $0.14)
AAPL November 125 calls (AAPL161118C00125000, $0.70, down $0.07)
Entry Price: $1.10 (10/11/2016)
Exit Target: $2.20
Stop Target: None
Action: Earnings are due out after the closing bell today. We plan to hold the trade through earnings, but feel free to exit the trade at your discretion if you do not feel comfortable taking the headline risk.
Resistance is at $117.50-$118. Support is at $116.50.
Finisar (FNSR, $29.56, down $0.30)
FNSR November 31 calls (FNSR161118C00031000, $0.50, down $0.10)
Entry Price: $1.28 (10/10/2016)
Exit Target: $2.60
Stop Target: $0.30 (Stop Limit)
Action: Resistance is at $30-$30.25. Support is at $29-$28.75.
Viavi Solutions (VIAV, $7.24, down $0.05)
VIAV December 8 calls (VIAV161216C00008000, $0.16, down $0.03)
Entry Price: $0.51 (8/19/2016)
Exit Target: $1.05
Stop Target: $0.05 (Stop Limit)
Action: Support is at $7.10-$7 and the 100-day moving average. Resistance is at $7.25-$7.35 and the 50-day moving average.
Editor and Chief Options Strategist