Mid-Market Update for 3/2/2017

Hard to Strangle Big Lots (BIG)

1:40pm (EST)

I mentioned on Monday afternoon there were a number of stocks that would make big moves this week and I highlighted Big Lots (BIG) making a potential 5%-10% move. The company will report earnings ahead of Friday’s open with Wall Street expecting a profit of $2.22 a share on revenue of $1.59 billion.

The high estimate has earnings pegged at $2.27 a share with the low at $2.20. This could mean a nickel beat or a 2-cent miss. Although the company has topped estimates the past four quarters by 5, 6, 12 and 2 cents over the past four quarters, this could be a lofty goal given the current state of the retailers. In fact,Big Lots has missed revenue estimates in 3 of the past 4 quarters.

The current revenue estimates are at $1.59 billion and $1.58 billion as the high/ low and this could lead to a bigger beat or revenue miss given the low spread. A revenue number south of $1.58 billion, along with lower guidance, could cause analysts sentiment to turn even more sour. However, an earnings beat, along with a dividend hike from the current 1.6% could propel shares higher.

There are currently 15 analysts that cover Big Lots earnings with only one Strong Buy and two Buy recommendations. Three of the suit-and-ties have a Hold rating, four Underperform and five Sell rating round out the sentiment. I more in the bearish than bullish camp but the company has been known to pull a rabbit out of the hat with the earnings beats.

Shares rallied 4% intraday last December; gained 14% last May; and added nearly 3% last March following the earnings announcements. The stock fell nearly 5% last August after reporting quarterly results.

The chart below shows a downward sloping 50-day moving average with near-term support at $51.50-$51. Additional support is at $50-$49.75 and the 100/200-day moving averages. A death cross is in the process of forming with the current slope action and usually represent a bearish development. Resistance is at $53-$53.50 with a move above $54 likely leading to short-covering. The 52-week high is at $56.54.

Bearish traders can target the BIG March 47.50 puts (BIG170317P00047500, $0.80, down $0.05) for a possible 10% drop that would shave over $5 and have the stock near $47. A double, or 100% return, would occur if shares fall below $45.90, technically, by March 17th.

Bullish traders can target the BIG March 57.50 calls (BIG170317C00057500, $0.70, up $0.10) for a possible surge past $57 on a 10% move in the stock from current levels. These call options would double if shares trip $58.90 by March 17th.

The aforementioned near-term options expire two weeks from tomorrow and a less than 10% would crush the premiums in both the call and puts. A strangle option trade could be deployed using both options with a price tag of $1.50. This would put the breakeven points for the trade at $59 and $46. Profits would be made on a move above or below these levels with a double occurring if shares clear $60.50, or fall below $44.50. This would have the calls or puts $3 in-the-money.

Of course, this would require a much larger move in the stock of 15% or more from current levels with just over two weeks for the strangle option trade. If you are on the wrong side of a directional call or put option trade, you losses could be 90%-100%. If shares moves less than 5%-10%, the call and puts could both suffer significant losses.

Given the risk/ reward of the strangle option trade, and the unpredictable reactions to earnings announcements, my homework has me on the sidelines for a possible trade. However, there could be a play post earnings announcement with the April option chains so keep shares on your Watch List.

Turning our focus on the market, the bulls are taking a breather following a choppy open. The Dow is down 61 points to 21,053 while the S&P 500 is lower by 10 points to 2,385. The Nasdaq is off 30 points to 5,873 and the Russell 2000 is falling 10 points to 1,403.

I have update the parameters for our latest trade, FOLD, along with the other positions. Stay close to your email inboxes in case I take additional action ahead of the closing bell.


Momentum Options Play List

Closed Momentum Options Trades for 2017: 16-2 (89%). All trades are dated and time stamped for verification. New subscribers can look at the past history to see how the trades have played out or to research our Track Records.

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 8am and 12pm–2pm (EST) updates. Also, I will usually give you a heads-up if I think I’m going to send a Trade Alert outside of these time frames.

Amicus Therapeutics (FOLD, $8.02, up $0.42)

FOLD April 8 calls (FOLD170421C00008000, $0.65, up $0.18)

Entry Price: $0.60 (3/2/2017)
Exit Target: $1.20
Return: 11%
Stop Target: None

Action: Set an Exit Target at $1.20. There is no Stop Target.

Fresh resistance is at $8-$8.25. Support is at $7.50-$7.25. I will have a more detailed write-up on the company early next week.


Tower Semiconductor (TSEM, $23.29, down $0.13)

TSEM April 24 calls (TSEM170421C00024000, $0.65, flat)

Entry Price: $0.65 (3/1/2017)
Exit Target: $1.30
Return: 0%
Stop Target: None

Action: Support is at $23.25-$23. Resistance is at $23.50-$23.75.


Vuzix (VUZI, $6.82, down $0.08)

VUZI April 7.50 calls (VUZI170421C00007500, $0.50, down $0.05)

Entry Price: $0.50 (2/27/2017)
Exit Target: $1.00
Return: 0%
Stop Target: None

Action: Support is at $6.50-$6.25. Resistance is at $7-$7.25.


3D Systems (DDD, $14.88, down $0.21)

March 18 calls (DDD170317C00018000, $0.10, flat)

Entry Price: $0.45 (2/22/2017)
Exit Target: $1.00
Return: -78%
Stop Target: None

Action: Support is at $15-$14.75. Resistance is at $15.25-$15.50.


Flex (FLEX, $16.62, down $0.08)

FLEX April 17 calls (FLEX170421C00017000, $0.35, flat)

Entry Price: $0.35 (2/15/2017)
Exit Target: $0.70
Return: 0%
Stop Target: None

Action: Support is at $16.50-$16.25. Resistance is at $16.75-$17.


TherapeuticsMD (TXMD, $6.65, up $0.14)

TXMD June 7.50 calls (TXMD170616C00007500, $0.85, up $0.05)

Entry Price: $0.75 (1/18/2017)
Exit Target: $1.50
Return: 16%
Stop Target: None

Action: Resistance is at $6.75-$7. Rising support is at $6.50-$6.25.