Mid-Market Update for 8/7/2017

Wayfair (W) Earnings in Focus

12:40pm (EST)

Shares of Wayfair (W) could be in for a massive move on Tuesday as the company reports earnings before Tuesday’s opening bell. Wall Street is expecting a loss of $0.46 a share on just over $1 billion in revenue. With shares at an all-time high, it remains to be seen how much investors will pay for a company that expected to lose $1.55 for 2017 and post another loss of 78 cents a share for 2018.

The company has posted better-than-expected losses over the past three quarters, topping loss estimates by 8, 16, and 6 cents, respectively. In the year ago quarter, Wayfair lost 43 cents a share that was two cents worse-than-expected.

In any event, the chart has been bullish following the 2-year quadruple-top breakout in May as you can see from the chart below. Despite reporting a loss of 48 cents a share, revenue topped estimates. Perhaps this was the reason, investors were bullish if you watched the headlines, but the real reason was the short-interest in the stock.

W Chart

Short-interest is still high on the stock with over 8.2 million shares shorted. Citron Research founder Andrew Left is perhaps the most well-known short-seller of the stock and has said the company will never make money.

He has also compared the company’s internal controls to Bernard Madoff’s after saying the company’s accounts payable, cash flow, and its business model is stupid. He also said Wayfair will never make money.

There have been other famous short-sellers feuds over the years and they are fun battles to watch. The problem with being short a stock is that there is NO price stop as shares could trade to $100, $200, or beyond. As a short-seller, the low a stock can go is zero. However, a drop from $80 to $60 would be a 25% haircut.

The $60 level is also falls in the area of the 100-day moving average and would represent a 25% haircut from current levels. A tumble to $50-$49 and the 200-day moving average would represent a 38% shellacking. Of course, a run to $100+ could come on another revenue beat and continued short covering.

I’m not sure which way the action is going but Wall Street will likely be focused on the number of active customers in its Direct Retail business. Last quarter it reached 8.9 million and represented an increase of 45.8% year-over-year. If this number tops 10 million, it could be the bullish sign that send shares towards, or past $100.

There are weekly and monthly options available to trade on Wayfair but realize the premiums are very high with large spreads. The W August 85 calls (W170818C00085000, $3.25, up $0.10) would double from current levels if shares clear $91.50, technically, by August 18th. The W August 95 calls W170818C00090000, $1.00, up $0.05) would return 100% if shares clear $97 by next Friday.

As a strangle or bearish trade, the W August 70 puts (W170818P00070000, $1.80, down $0.05) and the W August 65 puts (W170818P00065000, $0.80, flat) can be targeted as protection, or a directional trade. As a bearish trade, the puts would double, if shares fall below $66.20 on the W August 70 puts, or $63.40 on the August 65 puts – by August 18th.

Analysts have been bullish on the stock throughout the year with a number of price targets in the $80’s. Most of them came after the May breakout and a better-than-expected quarter could get another fresh round of suit-and-tie upgrades. Interestingly, Citron Research said after the May earnings announcement that he expects shares to come back down to $45.

I spent a lot of time over the weekend debating this trade and I’m still on the fence. If I decide to trade a few contracts, I will send out a Trade Alert.

Turning our focus to the market, the Dow is advancing 23 points to 22,116 while the S&P 500 is up 2 points to 2,478. The Nasdaq is higher by 25 points to 6,376 and the Russell 2000 is gaining 3 points to 1,415.

I have updated our current trades and stay locked-and-loaded into the close in case I take action on a New Trade.


Momentum Options Play List

Closed Momentum Options Trades for 2017: 42-17 (71%). 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.


3D Systems (DDD, $13.10, down $0.37)

August 16 puts (DDD170818P00016000, $2.75, up $0.25)

Entry Price: $0.55 (8/2/2017)
Exit Target: $3 (closed half @ $1.10 on 8/3/2017)
Return: 218% ($1.80 current avg. closing price)
Stop Target: $2.20 (Stop Limit)

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


Alcoa (AA, $38.24, up $0.83)

AA August 39 calls (AA170818C00039000, $0.50, up $0.15)

Entry Price: $0.55 (7/25/2017)
Exit Target: $1.10
Return: -10%
Stop Target: None

Action: Fresh resistance is at $38.25-$38.50. Support is at $37.50-$37.


Wendy’s (WEN, $15.39, down $0.31)

WEN August 16 calls (WEN170818C00016000, $0.25, down $0.05)

Entry Price: $0.45 (7/12/2017)
Exit Target: $0.90
Return: -54%
Stop Target: None

Action: Support is at $15.25-$15. Resistance is at $15.50-$15.75.


TherapeuticsMD (TXMD, $5.23, up $0.03)

TXMD August 7.50 calls (TXMD170818C00007500, $0.10, flat)

Entry Price: $0.50 (6/22/2017)
Exit Target: $1.00
Return: -80%
Stop Target: None

Action: Support is at $5.25-$5. Resistance at $5.50-$5.75 holding.