Mid-Market Update for 5/10/2017

Whole Foods Market (WFM) Earnings on Deck

1:00pm (EST)

Shares of Whole Foods Market (WFM) will be on the move in extended trading as the company prepares its upcoming earning report after today’s closing bell. The stock has surged off a March low and “triple-bottom” near $28.50 and recently traded near $37.50 on possible takeover chatter.

Given the recent enthusiasm, earning will be closely scrutinized with analysts expecting a profit of $0.37 a share on revenue of $3.73 billion. The high estimate is pegged at $0.38 a share with the low estimate at $0.33 a share. This could mean a possible penny beat on earnings, or, a four-cent miss.

Over the past four quarters, Whole Foods has matched estimates twice and topped expectations by 4 and 3 cents, respectively. In their last earnings report, the company lowered its 2017 earnings per share to $1.33, or better, from $1.42 or more. Revenue growth was also reduced for the year to 1.5%, or greater, from 2.5%-4.5%. At the time, analysts had been expecting 2017 earnings of $1.44 on revenue of $16.26 billion.

The grocery business continues to be a cutthroat business and I’m not sure I buy into all of the speculation of a takeover for Whole Foods. With a market cap north of $11 billion, I believe shares are fully priced for a takeover offer and any offer would come at much lower levels. In fact, an earnings miss, might be a dose of reality for the activists that have been pushing for a buyout.

The WFM June 35 puts (WFM170616P00035000, $0.80, up $0.70) are showing some interest and have an appealing risk/ reward setup. These options would double from current levels if shares fall below $33.40, technically, by mid-June.

On the flip side, the WFM June 37 calls (WFM170616C00037000, $1.10, down $0.10) can be targeted by bullish investors expecting a breakout past resistance and possible run towards $38-$40. These options would double from current levels if shares clear $39.20, technically, by June 16th.

Both options, together, would cost just under $2 with a breakeven points at $33 and $39. If shares are above $41, or below $31, by mid-June, the aforementioned strangle option trade would double.

Although I’m more bearish than bullish on WFM, I will likely sit this one out. I would like to see shares make a possible push towards $37.50 while stalling after the announcement. This would lower the cost of the June 35 puts for a possible better setup later in the week.

As far as the market, it’s been more of the same inside of a tight trading range. The Dow is down 20 points to 20,955 while the S&P 500 is up a point to 2,398. The Nasdaq is adding 2 points to 6,122 and the Russell 2000 is gaining 4 points to 1,396.

I have updated our current trades so let’s go check the tape.


Momentum Options Play List

Closed Momentum Options Trades for 2017: 28-10 (74%). 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.


Viavi Solutions (VIAV, $11.54, flat)

June 12 calls (VIAV170616C00022500, $0.40, flat)

Entry Price: $0.35 (5/5/2017)
Exit Target: $0.70-$1.05
Return: 14%
Stop Target: None

Action: Support is at $11.25-$11. Resistance is at $11.50-$11.75.


iShares Russell 2000 (IWM, $138.85, up $0.50)

IWM June 134 puts (IWM170616P00134000, $1.00, down $0.10)

Entry Price: $1.40 (5/2/2017)
Exit Target: $2.10-$2.80
Return: -29%
Stop Target: 70 cents (Stop Limit)

Action: Resistance is at $139-$139.50. Near-term support is at $138-$137.50.


STMicroelectronics (STM, $16.81, up $0.23)

STM July 17.50 calls (STM170721C00017500, $0.70, up $0.05)

Entry Price: $0.55 (5/2/2017)
Exit Target: $1.10
Return: 27%
Stop Target: None

Action: Fresh resistance at $16.75-$17. Rising support is at $16.50-$16.25.


Cypress Semiconductor (CY, $13.56, up $0.13)

CY June 14 calls (CY170616C00014000, $0.40, up $0.05)

Entry Price: $0.85 (4/20/2017)
Exit Target: $1.70
Return: -53%
Stop Target: 25 cents

Action: Resistance is at $13.50-$13.75. Support is at $13.25-$13.