MomentumOptions.com Mid-Market Update for 6/6/2017
Ambarella (AMBA) Earnings on Deck
12:05pm (EST)
With second-quarter earnings season just a month away, earnings have been on the back-burner as Wall Street focuses on economic and geopolitical news in the meantime. Companies with different fiscal years fill the void during off months following the the rush at the start of the quarterly earnings announcements.
Ambarella (AMBA) will confess first-quarter results after today’s closing bell with Wall Street looking for a profit of $0.36 a share on revenue of $63.5 million. The company has smashed estimates the past four quarters by 18, 17, 16, and 6 cents, respectively. The high estimate for the recently ended quarter has the company earning 41 cents a share.
Despite the impressive earnings beats, shares have struggled afterwards falling the past three earnings announcements. The pullbacks have been 4%, 11%, and nearly 7%. In the year ago period, shares rallied 9%.
Last week’s sudden pullback from the $65 level to double-nickels ($55) came on drone launch concerns as the company’s largest customer, DJI, may have dual-sourced video processing chips. DJI’s Spark drone went on the market with a price tag of $499 and this concern could become a material headwind, if true.
Shares held the 100-day moving average on the punishment and are trying to hold shaky support at $59 and the 200-day moving average heading into the announcement. The 50-day moving average was in a solid uptrend but leveled off following the technical damage.
The recent action has juiced the option premiums in AMBA with weekly and monthly strikes available to trade. The regular AMBA June 60 calls (AMBA170616C00060000, $2.40, up $0.20) and the AMBA June 60 puts (AMBA170616P, $3.05, down $0.15) are pricing in a possible 8%-10% move in the stock during after-hours and into tomorrow’s open.
I don’t actively follow AMBA and I’m not sure if the recent volatility is an overreaction, or represents a buying opportunity ahead of earnings.
If shares were to make a run to $65 this week, the aforementioned call options would double from current levels as they would be $5 “in-the-money”. If shares stay below $60 and falter on the news, the call options would expire worthless. If shares fell below $53.90, technically, by next Friday, the aforementioned put options would double from current levels.
I don’t usually trade options that are priced over $2, especially with earnings trades, so I will be sitting on the sidelines watching the action. Other stocks in the chip sector could react in a positive or negative way based on AMBA’s numbers and I’m looking to the possible upside in other names.
Today’s action has been more of the same as yesterday with tight action to the downside. The market seems content to wait for the Thursday’s fireworks showcasing a former head of the FBI’s comments following his firing from a month ago and the outcome from the overseas election.
The Dow is down 5 points to 21,178 while the S&P 500 is off 2 points to 2,434. The Nasdaq is slipping a point to 6,294 and the Russell 2000 is declining 6 points to 1,390.
I have updated our current trades so let’s go check the tape.
Momentum Options Play List
Closed Momentum Options Trades for 2017: 33-10 (77%). 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.
Bank of America (BAC, $22.26, down $0.15)
BAC July 23 calls (BAC170721C00023000, $0.43, down $0.07)
Entry Price: $0.60 (6/5/2017)
Exit Target: $0.90-$1.20
Return: -28%
Stop Target: None
Action: Support is at $22.25-$22. Resistance is at $22.50-$22.75.
Flex (FLEX, $17.38, down $0.06)
FLEX July 18 calls (FLEX170721C00018000, $0.38, down $0.05)
Entry Price: $0.40 (6/1/2017)
Exit Target: $0.80
Return: -5%
Stop Target: None
FLEX July 17 calls (FLEX170721C00017000, $0.85, down $0.05)
Entry Price: $0.45 (5/16/2017)
Exit Target: $1.35
Return: 89%
Stop Target: 80 cents (Stop Limit)
Action: Support is at $17.25-$17. Resistance is at $17.75-$18.
Sony (SNE, $38.14, up $0.47)
SNE July 37 calls (SNE170721C00037000, $1.80, up $0.30)
Entry Price: $0.85 (5/26/2017)
Exit Target: $1.70, raise to $2.50
Return: 112%
Stop Target: $1.25 (Stop Limit)
Action: Raise the Exit Target from $1.70 to $2.50.
Fresh resistance is at $38.50-$38.75. Support is at $37.50-$37.25.
Amicus Therapeutics (FOLD, $8.55, up $0.14)
FOLD July 8 calls (FOLD170721C00008000, $1.10, up $0.20)
Entry Price: $0.85 (5/22/2017)
Exit Target: $1.70-$2.55
Return: 29%
Stop Target: None
Action: Near-term resistance is at $8.50-$8.75. Support is at $8.25-$8.
STMicroelectronics (STM, $16.40, down $0.13)
STM October 20 calls (STM171020C00020000, $0.50, flat)
Entry Price: $0.70 (5/15/2017)
Exit Target: $1.40
Return: -29%
Stop Target: None
STM July 17.50 calls (STM170721C00017500, $0.40, flat)
Entry Price: $0.65 (5/15/2017)
Exit Target: $1.30
Return: -38%
Stop Target: None
Action: Support s at $16.50-$16.25. Resistance is at $16.75-$17.
Viavi Solutions (VIAV, $11.43, up $0.22)
June 12 calls (VIAV170616C00022500, $0.10, flat)
Entry Price: $0.35 (5/5/2017)
Exit Target: $0.70-$1.05
Return: -71%
Stop Target: None
Action: Resistance is at $11.50-$11.75. Support is at $11.25-$11.
Cypress Semiconductor (CY, $14.25, up $0.09)
CY June 14 calls (CY170616C00014000, $0.50, up $0.05)
Entry Price: $0.85 (4/20/2017)
Exit Target: 90 cents
Return: -41%
Stop Target: 30 cents (Stop Limit)
Action: Resistance is at $14.25-$14.50. Support is at $14-$13.75.