Mid-Market Update for 5/11/2017

Bears Growling/ Profit Alert (STM)

1:25pm (EST)

The bears are trying to make a statement with today’s backtest to near-term support. The opening weakness got worse within the first 15 minutes of trading with the intraday lows coming shortly afterwards. Although the bulls have rebounded after holding near-term support, today’s close will be interesting if there is a retest.

There are a couple of stocks taking it on the chin as shares of Snap (SNAP, $18.56, down $4.42) and Macy’s (M, $25.48, down $3.86) are down sharply after reporting quarterly results.

While Wall Street knew Snap would report a losing quarter, they did with a $2.34 a share loss, the focus was more on the revenue number. On that front, the $149.65 million fell shy of expectations for revenue estimates just south of $158 million. Research & Development expenditures soared to $806 million for the quarter versus $15 million in the year ago period.

Snap believes that other businesses are going to develop a camera strategy but that they aren’t worried about competition from Facebook (FB). Of course, the company’s CEO might be a little naive after his recent windfall and the initial public offering so keep this in mind.

The option pits were pricing a 20% move in the stock post-earnings and it was certainly met with today’s 19% plunge to current levels. The SNAP June 20 puts (SNAP170616P00020000, $2.25, up $1.35) are zooming 150% after closing at 90 cents yesterday. The puts have traded to a high of $3.69 on heavy volume.

Meanwhile, Macy’s current 13% plunge can be blamed on its 10-cent earnings miss. The company reported a profit of $0.24 a share on revenue of $5.34 billion. The suit-and-ties were looking for earnings of $0.34 a share on sales of $5.47 billion. It was the second miss in the past three quarters for Macy’s.

The M June 28 puts (M170616P00028000, $3.20, up $2.05) are surging 175% following the shortfall. Nearly 4,000 contracts have exchanged hands on today’s double-digit pullback in the stock.

We recently traded SNAP for a 60% profit but I was a little hesitant betting against a revenue miss, and earnings trades are tricky. I should have seen the opportunity in Macy’s, however, as I have been a fan of the company. The problem is their stores have become so bland and unattractive that makes shopping at Macy’s depressing.

In any event, today’s action could be good news for the playbook, if there is further weakness. I have a number of put option trades ready to take advantage of a continued pullback but I often talk about stretch. We need a little more confirmation the action could get worse before getting aggressive.

The Dow is lower by 57 points to 20,885 while the S&P 500 is off 9 points to 2,390. The Nasdaq is down 27 points to 6,101 and the Russell 2000 is sliding 9 points to 1,390.

I have a Profit Alert for STM as our Stop Limit has tripped. I could have a New Trade ahead of the closing bell so stay close to your email inboxes.


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, $11.59, up $0.06)

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: Resistance is at $11.75. Support is trying to move up to $11.50-$11.25.


iShares Russell 2000 (IWM, $138.38, down $0.83)

IWM June 134 puts (IWM170616P00134000, $1.10, up $0.20)

Entry Price: $1.40 (5/2/2017)
Exit Target: $2.10-$2.80
Return: -21%
Stop Target: 70 cents (Stop Limit)

Action: Near-term support is at $138.50-$138. Resistance is at $139-$139.50.


STMicroelectronics (STM, $16.61, down $0.25)

STM July 17.50 calls (STM170721C00017500, $0.60, down $0.10)

Entry Price: $0.55 (5/2/2017)
Exit Target: $1.10
Return: 4%
Stop Target: 57 cents (Stop Limit)

Action: The Stop Limit at 57 cents triggered shortly after the open on the backtest to $16.35.


Cypress Semiconductor (CY, $13.68, up $0.10)

CY June 14 calls (CY170616C00014000, $0.40, flat)

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

Action: Resistance is at $13.75-$14. Support is at $13.25-$13, if $13.50 fails to hold.