MomentumOptions.com Mid-Market Update for 3/30/2017

LULU Shares Get Stretched on Weak Outlook

1:05pm (EST)

Shares of Lululemon Athletica (LULU, $50.73, down $15.56) are getting pummeled today on an earnings miss following Wednesday’s close. The company reported a profit of $1 a share on revenue of nearly $790 million for the recently ended quarter. Wall Street was looking for $1.01 a share on sales north of $783 million.

The problem was current quarter estimates were pegged for a profit of 25-27 cents a share on revenue of $510-$515 million. The suit-and-ties were looking for a profit of 39 cents with revenues clearing $552 million.

The LULU April 60 puts (LULU170421P00060000, $8.90, up $8.05) came into the week at $1.40 and went out at 85 cents yesterday. It was very, very tempting to buy these put options ahead of the close with shares surging 4% as I watched the action throughout the week. While I knew a possible earnings beat could be in the cards, I mentioned the company needed a rosy outlook to avoid shares possibly falling to double-nickels ($55).

The aforementioned put options are up a whopping 935% today on the stock’s 23% slide. The risk to the trade would have been a beat-and-raise quarter with shares surging past $70. In this event, these options would have likely expired worthless with shares easily holding $60 until April 21st.

The LULU April 67.50 calls (LULU170421C00067500, $0.02, down $2.38) came into the week at $1.45 and traded to a high of $2.45 on Wednesday. These options are down a whopping 99% and will more than likely expire worthless as a recovery past $67.50 in three weeks ain’t gonna happen.

Although I was skittish on doing a bearish directional trade on LULU, I wanted to cover the possibilities of doing a strangle option trade. Both aforementioned call and put options would have cost just under $3 on Monday morning and could have been used to play the double-digit percentage stock move.

With the put options trading near $9, the return on the strangle trade would have been over 200% despite the calls likely expiring worthless. Both positions could be closed at current levels to avoid “watching” the trade, or, a tight stop can be used on the puts while letting the calls expire worthless over the next 3 weeks.

With earnings season just around the corner, I could use these types of strangle option trades to play a possible stock that could move 10%-15%, or more. However, it is also important to remember these types of trades can also lose up to 90%-100% if a stock doesn’t make the expected move you have priced in, or stays range bound and between the strike prices until expiration.

Turning our attention to the market, the bulls continue to show resiliency with the major averages pushing near-term resistance again. The Dow is up 25 points to 20,684 while the S&P 500 is gaining 3 points to 2,364. The Nasdaq is higher by 4 points to 5,901 and the Russell 2000 is adding 6 points to 1,377.

I have updated our current trades, along with a Trade Alert for SBUX, so let’s go check the action.

 

Momentum Options Play List

Closed Momentum Options Trades for 2017: 21-3 (88%). 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.

 

TherapeuticsMD (TXMD, $7.07, down $0.12)

TXMD May 7.50 calls (TXMD170519C00007500, $0.85, down $0.05)

Entry Price: $0.80 (3/27/2017)
Exit Target: $1.60
Return: 6%
Stop Target: None

Action: Support is at $7-$6.75. Resistance is at $7.25-$7.50.

 

Viavi Solutions (VIAV, $10.73, down $0.12)

VIAV May 12 calls (VIAV170519C00012000, $0.28, down $0.03)

Entry Price: $0.29 (3/27/2017)
Exit Target: $0.60
Return: -3%
Stop Target: None

VIAV April 11 calls (VIAV170421C00011000, $0.30, down $0.05)

Entry Price: $0.42 (3/20/2017)
Exit Target: $0.85
Return: -29%
Stop Target: None

Action: Support is at $10.75-$10.50. Resistance is at $11-$11.25.

 

Starbucks (SBUX, $57.97, up $0.42)

April 52.50 puts (SBUX170421P00052500, $0.02, down $0.01)

Entry Price: $0.40 (3/10/2017)
Exit Target: $0.80
Return: -95%
Stop Target: None

Action: Close the trade at current levels. I doubt shares will fall more than 10% before earnings and these options will expire before the news.

 

Amicus Therapeutics (FOLD, $7.24, down $0.18)

FOLD April 8 calls (FOLD170421C00008000, $0.15, down $0.10)

Entry Price: $0.60 (3/2/2017)
Exit Target: $1.20
Return: -75%
Stop Target: None

Action: Support is at $7.25-$7. Resistance is at $7.75-$8.

 

Tower Semiconductor (TSEM, $23.16, up $0.07)

TSEM April 24 calls (TSEM170421C00024000, $0.30, flat)

Entry Price: $0.65 (3/1/2017)
Exit Target: $1.30
Return: -54%
Stop Target: None

Action: Resistance is at $23.25-$23.50. Support is at $23-$22.75.

 

Flex (FLEX, $16.75, up $0.19)

FLEX April 17 calls (FLEX170421C00017000, $0.25, flat)

Entry Price: $0.35 (2/15/2017)
Exit Target: $0.70
Return: -29%
Stop Target: None

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