MomentumOptions.com Mid-Market Update for 6/26/2017
General Mills (GIS) facing Crucial Quarter
Shares of General Mills (GIS) could see some volatile action on Wednesday as the company is expected to report earnings ahead of the opening bell. The chart looks bearish with shares near 52-week lows. Analysts are expecting a profit of $0.71 a share on revenue of $3.76 billion.
As far as the technical outlook, the major moving averages are all in a serious downtrend with near-term resistance at $56.50-$57 and the 50-day moving average. Shaky support is at $55.50-$55 with the recent 52-week low at $55.57. More importantly, you can see the extreme volatility in February from the $62.50 level to the $58 level. There was also a spike higher in early may from double-nickels ($55) to nearly $60.
On February 14th, shares made a pop past $63 on takeover chatter, but tumbled a few days later after General Mills cut is sales and earnings forecasts for 2017. In May, shares caught fire after an unknown newswire issued a report claiming that 3G Capital had reached an agreement to acquire General Mills. The story was false and the market rumors abated until mid-June when M&A speculation popped up again.
The company has topped estimates in three of the past four quarters by a penny, three and six cents. Two quarters ago, they missed by a penny. More importantly, revenues have come in shy of expectations the past three quarters. In the year-ago quarter, revenues came in $400 million higher than forecasts.
The crowded traded is probably bearish with shares near 52-week lows and expectations low. The high estimates has the company earning $0.76 a share while the low estimate is pegged at $0.64 a share. This could mean a headline beat of 5 cents or an earnings miss of 7 cents.
The GIS July 57.50 calls (GIS170721C00057500, $0.70, up $0.05) can be targeted by bullish traders expecting a possible top and bottom line beat. These call options would double from current levels if shares trade past $58.90, technically, by July 21st.
Bearish traders can target the GIS July 52.50 puts (GIS170721P00052500, $0.30, down $0.05) and a test to fresh multi-year lows on a possible earnings or revenue miss. The 3-year chart for GIS shows risk to $52-$50 if the $55 level fails to hold. The aforementioned put options would double if shares fall below $51.90, technically, by July 21st.
Both call and put options, together, would create a strangle option trade for around $1. This would allow a trader to hedge their bet but it requires a larger move in the stock to make a triple-digit profit. With a premium near $1, shares will need to trade $2 above the call strike of 57.50, or below the put strike of 52.50. In other words, a run past $59.50, or a drop below $50.50, would get the trade to a 100% from current levels.
The risk of a strangle option trade is that shares stay in between the call and put strike prices and the premiums deflate over time by July 21st. While I’m slightly more bullish than bearish on General Mills, I will likely stay on the sidelines until after the dust settles. Perhaps there will be a trade after earnings, or next week, so I will keep shares on my Watch List.
As far as the market, the bulls have given up early gains with Tech underwater heading into the second half of trading. The Dow is up 34 points to 21,428 while the S&P 500 is adding 3 points to 2,441. The Nasdaq is lower by 10 points to 6,255 and the Russell 2000 is gaining a point to 1,416.
While I’m passing on GIS, I could have a New Trade ahead of the closing bell so stay close to your email inboxes.
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Closed Momentum Options Trades for 2017: 38-15 (72%). 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.
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Amicus Therapeutics (FOLD, $10.22, down $0.22)
FOLD July 10 calls (FOLD170721C00010000, $0.70, down $0.10)
Entry Price: $0.70 (6/22/2017)
Exit Target: $1.40
Stop Target: None
Action: Support is at $10-$9.50. Resistance at $10.50-$10.75.
TherapeuticsMD (TXMD, $5.64, down $0.07)
TXMD August 7.50 calls (TXMD170818C00007500, $0.50, flat)
Entry Price: $0.50 (6/22/2017)
Exit Target: $1.00
Stop Target: None
Action: Support is at $5.50 and the 100-day moving average. Near-term resistance is at $5.75-$6 and the 200-day moving average.
iPath S&P 500 VIX Futures (VXX, 12.35, down 0.18)
VXX August 14 calls (VXX170818C00014000, $0.70, down $0.05)
Entry Price: $1.20 (6/15/2017)
Exit Target: $2.40
Stop Target: None
Action: Support is at 12.50-12.25. Resistance is at 12.75-13.