11:55 a.m. (EST)
Earnings season is at its height this week.
Aflac (AFL), Amgen (AMGN), Big 5 Sporting Goods (BGFV), Buffalo Wild Wings (BWLD), C.H. Robinson Worldwide (CHRW), DreamWorks Animation (DWA), Express Scripts (ESRX), Genworth Financial (GNW), Marriott International (MAR), Noodles & Company (NDLS), Panera Bread (PNRA), RubyTuesday (RT), Trulia (TRLA), United States Steel (X) and Veritas Software (VRTS) are reporting their numbers after the close.
United States Steel (X, $28.08, up $0.24) is my favorite of the bunch for an earnings trade as shares usually make large price movements following the announcements.
The company is expected to report a loss of 29 cents a share on revenue of $4.2 billion. However, the range is exceptionally wide as the 17 suit-and-ties that follow US Steel have estimates ranging for a loss of 66 cents a share to a profit of 41 cents a share.
The firm has beat Wall Street’s numbers the past 4 quarters and has turned a profit for 2-straight.
Th August 28 calls (X140816C00028000, $0.85, up $0.05) could be used for a bullish run at $30 but they expire in less than 3 weeks. The September 30 calls (X140920C00030000, $0.60, up $0.05) would give the trade more time to play out and are the “cheaper” options but further out-of-the-money.
On the flip side, bearish traders could consider the August 27puts (X140816P00027000, $0.55, down $0.05) for an earnings miss or lowered guidance or the September 26 puts (X140920P00026000, $0.70, flat).
Given the risk/ reward, I would swing the bat on the September 30 calls but like I always say, earnings trades are tricky. This one is exceptionally risky given the $1.07 profit/loss spread for expected earnings.
This is not an official trade recommendation for the Daily or Weekly Wrap portfolio but I wanted to show traders some of the processes that go into planning an earnings trade.
Earnings trades are fun to play but I try to limit my exposure to them as I rely more on chart work, fundamentals, and the overall market conditions. However, at times, earnings will effect other trades within the same sector or the overall market, in general, and do come into play depending on the time frame of the trade.
As far as the market, the bulls are trying to follow through on yesterday’s rebound off the lows but I wouldn’t be surprised to see another flat finish ahead of tomorrow’s Fed statements.
The Dow is 24 points to 16,958 while the S&P 500 is lower by 5 points to 1,973. The Nasdaq is slipping 2 points to 4,442 and the Russell 2000 is advancing 4 points to 1,144.
Although I prefer to stay on the sidelines concerning United States Steel, I do have a New Trade for the Daily portfolio that is not an earnings trade. It is on a stock that I have followed for a number of years and continues to set fresh 52-week highs.
Subscribers, hit the Members Area for the action and stay locked-and-loaded into the close in case I see more low hanging fruit.
Closed Trades for 2014: 74-37 – the Weekly Wrap is 22-4 (85%) for 2014 (107-11, or 91% win rate, since 2011) and is designed for traders that want to use options with less risk. All trades are dated and time stamped so new subscribers can look at the past history to see how the trades have played out.
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 we 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 9am and 12pm-1pm updates. Also, I will usually give you a heads-up if I think I’m going to send an email outside of these time frames.
New Trade!!!
RF Micro Devices (RFMD, $11.26, up $0.34)
Buy to open September 12 calls (RFMD140920C00012000, $0.45, up $0.15)
Buy to open November 12 calls (RFMD141122C00012000, $0.70, up $0.15)
Action: I have recommended this stock in the past for both the Daily and Weekly Wrap. Shares continue to push fresh 52-week peaks and I like these calls for a run past $12. Shares could be headed to the mid-teens over the longer-term and these call options will do well on continued new highs. With m&a activity still hot, the company is also a solid takeover target.
Current Trades
CVS Caremark (CVS, $78.08, down $0.30)
September 82.50 calls (CVS140920C00082500, $0.40, down $0.05)
Entry Price: $0.45 (7/28/2014)
Exit Target: $0.90
Return: -11%
Stop Target: None
Action: There is risk to $77 and the 50-day MA on a close below $78. I’m looking for this area to hold as support before shares resume their uptrend for a possible push past $80. The 52-week high of $79.43 was reached in early June.
iShares Russell 2000 (IWM, $113.39, down $0.36)
August 118 calls (IWM140816C00118000, $0.20, flat)
Entry Price: $0.60 (7/22/2014)
Exit Target: $1.20
Return: -67%
Stop Target: None
Action: Continue to hold.
Pool (POOL, $54.90, down $0.40)
October 50 puts (POOL141018P00050000, $1.10, up $0.20)
Entry Price: $1.10 (7/16/2014)
Exit Target: $2.20-$3.30
Return: 0%
Stop Target: None
Action: Shares are on the verge of testing the July low of $54.16. A break below this level should lead to $50 and fresh 52-week lows. Resistance is holding at $57 along with the 200-day MA.
The break-even point for the trade is at $48.90, technically, by mid-October. In other words, this trade has plenty of time to play out.
Fortinet (FTNT, $25.15, down $0.13)
September 28 calls (FTNT140920C00028000, $0.35, flat)
Entry Price: $0.55 (6/30/2014)
Exit Target: $1.10 (Limit Order to close HALF)
Return: -36%
Stop Target: None
Action: There is risk to $25-24 on continued weakness. These are September options and I will likely keep the trade open as long as $24 holds. A close above $26 would be bullish.
General Motors (GM, $34.80, down $0.10)
September 32 puts (GM140920P00032000, $0.40, up $0.05)
Entry Price: $0.40 (6/23/2014)
Exit Target: $0.80-$1.20 (Limit Order to close HALF at 80 cents)
Return: 0%
Stop Target: None
Action: GM is below all of its major MA’s and is on track to test the low $30′s. Resistance is at $36.
Other 2014 Portfolio OPEN positions (1): These are trades that are still open in the portfolio but are down over 50%. They have longer expiration dates and are on “hold” but are not worth mentioning until they turn around. This means I would not open any new positions. I’m still keeping track of the trades and will record the results accordingly, when the trade closes or if the options expire. Click on the 2014 Portfolio link in the Members Area to view ALL open/ closed trades.
Apollo Group August 23 puts (from April 2014) – Shares continue to hold $28 and I doubt a $5 move to the downside comes over the next couple of weeks. The puts are fetching a nickel so close the trade at current levels. I will keep Apollo Group on my Watch List as it is a longer-term short and may suggest a new position on a break below $27.75.