Dear Momentum Options Subscriber,
Shares of Alibaba (BABA, $78.89, down $1.70) are poised for a big move on Thursday when the company announces earnings. With shares below its initial public offering (IPO) price, there is a good chance the low-$70s or mid-$80s could come into play on a continued decline or rebound in the stock.
Alibaba is expected to report earnings of $0.43 a share on revenue of $2.78 billion. The company beat expectations by six cents last time out and matched the previous quarter since becoming public in September 2014.
Sentiment has been bearish on the stock and the company will need to impressive quarter to change investor’s minds about getting back into the stock.
The options pits are pricing in a possible 5%-8% move in the stock. The BABA May 85 calls (BABA150515C00085000, $1.00, down $0.40) and the BABA May 73 puts (BABA150515P00073000, $0.90) are trading for roughly $2 together and would create a strangle option trade to play a possible $5+ move.
The BABA May 79 calls (BABA150515C00079000, $3.00, down $0.95) and the BABA May 79 puts (BABA150515P00079000, $3.10, up $0.75) together and would create a straddle option trade to play the move.
I did some chart work last night and was looking to get into a possible trade, but the premiums are a little too pricey for me. If shares make less than a 5% move, the premiums will get crushed.
Heading into the second half of trading, the Dow is down 54 points to 18,016, while the S&P 500 is lower by a 12-pack to 2,102. The Nasdaq is off 53 points to 4,963, and the Russell 2000 is declining 15 points to 1,217.
I have updated our current trades, so let’s go check the action. I could also have additional updates into the close so stay locked and loaded.
Momentum Options Play List
Closed Momentum Options Trades for 2015: 46-14-1 (75%). 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 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 9 a.m. and 12 p.m. – 1 p.m. 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.
All prices given in this update are current as of 12:30 p.m. EST.
Every new Momentum Options recommendation is listed with the price at which I entered my own position. If the price is slightly different than my recommended entry or exit price when you receive the alert, don’t let that keep you from getting into or out of a trade. Occasionally, you might even get a better “fill” price than what is posted in the Open Trades and Closed Trades.
Wells Fargo (WFC, $55.93, up $0.20)
WFC June 57.50 calls (WFC150619C00057500, $0.40, up $0.05)
Entry Price: $0.31 (5/4/2015)
Exit Target: $0.65
Return: 28%
Stop Target: None
Action: The 52-week high is at $56.26, and shares have traded up to $56.17 today. Support is at $55-$54.75.
Limelight Networks (LLNW, $4.10, down $0.08)
LLNW September 4 calls (LLNW150918C00004000, $0.60, down $0.05)
Entry Price: $0.35 (4/29/2015)
Exit Target: $0.80 (Limit Order on half)
Return: 71%
Stop Target: $0.40 (Stop Limit)
Action: Resistance is at $4.20-$4.25. A close above the latter could lead to a run at $4.50-$5. Support has moved up to $4, with $3.80-$3.75 serving as backup.
You can read my full update on LLNW in the May 1 Pre-Market Update.
Krispy Kreme Doughnuts (KKD, $17.70, down $0.44)
KKD June 17 puts (KKD150619P00017000, $0.70, up $0.10)
Entry Price: $0.35 (4/28/2015)
Exit Target: $1.05 (closed first half at $0.70 on 4/29/2015)
Return: 100%
Stop Target: $0.50 (Stop Limit)
Action: Support is at $17.75-$17.50 on another drop below $18. Resistance is at $18-$18.25.
Earnings are due out the first week of June. I have a target of $15 for KKD going into, or after the announcement, as long as $18.50 holds.
You can read my full update on KKD in the April 29 Pre-Market Update.
Opko Health (OPK, $14.04, down $0.23)
OPK June 16 calls (OPK150619C00016000, $0.35, down $0.05)
Entry Price: $0.50 (4/27/2015)
Exit Target: $1.00
Return: -30%
Stop Target: None
Action: Support is at $14. Resistance is at $14.25-$14.50 and the 50-day moving average.
Earnings are scheduled to be released this week or early next. I have an unconfirmed date of this Friday. Analysts are looking for a loss of $0.08 a share on revenue of $23 million. I believe OPK will top these numbers.
Dot Hill Systems (HILL, $6.45, up $0.01)
HILL September 7.50 calls (HILL150918C00007500, $0.50, flat)
Entry Price: $0.45 (4/20/2015)
Exit Target: $1.35-$1.80
Return: 11%
Stop Target: None
Action: Resistance is at $6.50-$6.75 and the 52-week high. Near-term support is at $6.25.
Earnings are estimated to be released on Thursday, May 7. Wall Street is expecting a profit of $0.06 a share on revenue north of $59 million. The company has beaten or matched estimates the past four quarters, and another upside surprise could have shares pushing $7. There is risk back to $6 on an earnings miss or lowered guidance.
Trades on Hold — other 2015 Portfolio Open positions (3): 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 Open Trades and Closed Trades pages to see all open and closed positions.
SunPower (SPWR) June 38 calls (from April 2015) — I will likely close this trade if support at $30 fails. Resistance is at $32.50 — Continue to hold.
iShares Russell 2000 (IWM) May 127 calls (from April 2015) — I would like to be out of this trade by this Friday, win, lose or draw — Continue to hold.
BlackBerry (BBRY) June 13 calls (from March 2015) — This is a speculation trade from early March on BBRY receiving a takeover offer of $14 or better by mid-June — Continue to hold.
Trade on!
Rick Rouse
Editor and Chief Options Strategist
Momentum Options