12:50 p.m. (EST)
Twitter (TWTR, $46.79, up $8.20) sent the shorts sellers of its stock running for cover as shares are surging 21% today following an earnings beat-and-raise quarter.
The naysayers that say said shares were headed back to the lows $30′s or that the company’s business model needed “tweaking” are now having second thoughts.
The company reported a profit of 2cents a share on revenue of $312 million. The suit-and-ties were expecting a loss for a penny a share on revenue of $283 million. Obviously, Wall Street’s expectations were too low and pessimism was too high.
I have chronicled Twitter’s fall from grace following the 52-week high just south of $75 to the May low to under $30. I recommended the January 50 calls (TWTR150117C00050000, $4.70, up $2.85) back in early May at $1.75 and the trade made 28% by mid-June after closing the trade for an average price of $2.20. They are up over 150%. Unfortunately, I didn’t keep them on my Watch List as these options were back near the original price point. However, shares were at $32 and not $38 so the risk parameters were much higher going into earnings.
Twitter may be complicated to use to some, quirky for others, or a non-factor in most people lives. I have talked about their brand name and news feed (tweeting) being a global force and the earnings surprise was just what the bulls needed.
Elsewhere, shares of United States Steel (X, $32.80, up $5.13) are soaring nearly 20% after reporting a smaller-than-expected loss. I talked about Wall Street’s expectations coming into the quarter and the wide range analysts had but the bigger news is what the options are doing.
The US Steel September 30 calls (X140920C00030000, $3.40, up $2.80) are up a jaw-dropping 467%.
Heading into the second half of trading, the Dow is down double-nickels to 16,856 while the S&P 500 is lower by 3 points to 1,966. The Nasdaq is higher by 9 points to 4,451 while the Russell 2000 is up a point to 1,143.
I have another New Trade for today on a stock that is no stranger to the portfolio. I recommended call options in early February that returned readers over 200% in 3 weeks. I’m looking to pull another rabbit or two out of the hat as I’m also looking at a longer-term trade for the Weekly Wrap as well.
Subscribers, hit the Members Area for the updates and New Trade.
Closed Trades for 2014: 74-38 – 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!!!
World Wrestling Federation (WWE, $12.03, down $0.44)
Buy to open September 13 calls (WWE140920C00013000, $0.50, down $0.15)
Action: Shares have been slammed in recent months but could make a monster move if the company says subscriber growth is back on track.
I have wanted to add the stock to the Weekly Wrap portfolio as a covered call trade but I also wanted to ensure support held following the stumble from $32 in mid-March to a May low of $10.55.
This is an iconic stock that has been way oversold and folded like a cheap lawn chair after letting Wall Street down in prior quarters. However, in late May the company said it was sticking with its quarterly subscriber guidance.
World Wrestling also has a partnership with Lionsgate to produce movies that could add to the bottom line in futures quarters. The also company pays a 4% dividend and has not said it is in danger or being suspended which is always a warning sign for a struggling company.
Unloved stocks can quickly become sweethearts again with the right smile and forgivness. Hopefully, the company says some good things ahead of Thursday’s open. This is an earnings trade so the risk is higher and so is the reward if shares can make a run to the mid-teens over the next month.
Current Trades
RF Micro Devices (RFMD, $11.54, up $0.16)
September 12 calls (RFMD140920C00012000, $0.60, up $0.10)
Entry Price: $0.45 (7/29/2014)
Exit Target: $0.90
Return: 33%
Stop Target: None
November 12 calls (RFMD141122C00012000, $0.90, up $0.10
Entry Price: $0.70 (7/29/2014)
Exit Target: $1.40
Return: 29%
Stop Target: None
Action: I have a near-term target of $13 and a longer-term of $15 on the stock. Support will try to hold at $11 on any pullbacks.
CVS Caremark (CVS, $77.94, up $0.14)
September 82.50 calls (CVS140920C00082500, $0.35, flat)
Entry Price: $0.45 (7/28/2014)
Exit Target: $0.90
Return: -22%
Stop Target: None
Action: There is risk to $77 and the 50-day MA on the 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. Earnings are due out next week.
iShares Russell 2000 (IWM, $113.59, up $0.25)
August 118 calls (IWM140816C00118000, $0.20, flat)
Entry Price: $0.60 (7/22/2014)
Exit Target: $1.20
Return: -67%
Stop Target: None
Action: Support is at $112. I would like to see a close above $115 ahead of the weekend.
Pool (POOL, $55.12, up $0.57)
October 50 puts (POOL141018P00050000, $1.00, down $0.10)
Entry Price: $1.10 (7/16/2014)
Exit Target: $2.20-$3.30
Return: -9%
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, $25.32, up $0.20)
September 28 calls (FTNT140920C00028000, $0.35, up $0.05)
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 options have 2 months before expiration and I will likely keep the trade open as long as $24 holds. A close above $26 would be bullish.
General Motors (GM, $34.34, down $0.10)
September 32 puts (GM140920P00032000, $0.45, up $0.10)
Entry Price: $0.40 (6/23/2014)
Exit Target: $0.80-$1.20 (Limit Order to close HALF at 80 cents)
Return: 13%
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 (0): 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.