Dear Momentum Options Subscriber,
First-quarter earnings season kicks into second gear this week, and I mentioned that there would be a number of marquee names reporting their numbers. Here is a quick peak at the companies that will be reporting this week.
After today’s closing bell, International Business Machines (IBM) will announce its earnings. Its results will weigh on Tuesday’s overall market action, as it is a heavily-weighted Dow component.
On Tuesday, Chipotle Mexican Grill (CMG), Harley-Davidson (HOG), Verizon Communications (VZ), Yahoo (YHOO) and Yum Brands (YUM) will confess their quarterly numbers.
On Wednesday, Wall Street will be looking for updates from AT&T (T), Boeing (BA), eBay (EBAY), Facebook (FB), McDonald’s (MCD) and Tractor Supply Company (TSC).
Thursday’s earnings action includes reports from 3M (MMM), Amazon (AMZN), Caterpillar (CAT), Domino’s Pizza (DPZ), Google (GOOG), Hershey (HSY), Microsoft (MSFT), PepsiCo (PEP), Las Vegas Sands (LVS) and Starbucks (SBUX).
Cabot Oil & Gas (COG) and Tyco International (TYC), Whirlpool (WHR) and Xerox (XRX) announce their results on Friday morning, with not much happening after the bell.
As far as the market, the bulls are trying to recover from Friday’s pullback and are heading into the second half of trading with a comfortable lead.
The Dow is up 232 points to 18,059, while the S&P 500 is higher by 21 points to 2,102. The Nasdaq is gaining 58 points to 4,990, and the Russell 2000 is advancing 13 points to 1,265.
I like one or two of the aforementioned companies as serious earnings trade candidates. For now, however, I have two new trades on names I have been following for a few weeks that I want to get us into.
Momentum Options Play List
Closed Momentum Options Trades for 2015: 40-11-1 (77%). 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 12:40 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.
New Trades
Sony (SNE, $30.30, up $0.30)
Buy to open the SNE May 32 calls (SNE150515C00032000, $0.50, up $0.10) at current levels.
I like these call options at current levels to play a run at $35. Earnings are due out on April 30. These are the regular monthly options that expire on May 15.
Rambus (RMBS, $12.81, down $0.10)
Buy to open the RMBS August 14 calls (RMBS150821C00014000, $0.65, down $0.05) at current levels.
Earnings are due out today after the closing bell. These are the regular monthly options that expire on Aug. 21. I have had good success this month trading Rambus, and it is a stock I have followed for years. Shares are very volatile, which is why I want to get into this trade, as I believe the company will have a better-than-expected quarter.
There is continued risk to $12.50 and the 50-day moving average. However, with earnings due out after today’s close, there is additional downside risk to $12 or lower on an earnings miss. There is 10% upside potential to $13.75-$14 on a better-than-expected quarter. The 52-week high is $14.82.
Wall Street is expecting Rambus to earn $0.06 a share on revenue just shy of $73 million. The company signed a number of partnerships over the past three months, so I’m expecting an earnings beat. I also believe the company could be a takeover target based on its intellectual properties.
The company has missed estimates in two of the past four quarters, including a penny miss last time around. This makes me a little uneasy, but, hopefully, this will be the quarter that it makes the turn and provides upside guidance for the rest of 2015.
I looked at the May options, as they would provide a bigger return if shares do trade 5%-10% higher. However, if the company misses earnings, lowers guidance or says anything negative, the May call options will take a much bigger hit and the options could expire worthless.
By using the August call options, it gives the trade four months play out and will lessen the blow of an earnings miss. It will also give the trade a much greater recovery time period if there is a pullback.
On a technical basis, a “mini” golden cross formed in February, with the 50-day moving average crossing above the 100-day moving average. Another golden cross developed earlier this month, with the 50-day moving average crossing above the 200-day moving average.
Current Trades
PowerShares QQQ Trust (QQQ, $107.48, up $1.47)
QQQ May 110 calls (QQQ150515C00110000, $0.40, up $0.15)
Entry Price: $0.60 (4/10/2015)
Exit Target: $1.20
Return: -33%
Stop Target: None
Action: A move back above $106.75-$107 this week would be bullish. Support is at $106.
Jabil Circuit (JBL, $23.44, up $0.37)
JBL May 24 calls (JBL150515C00024000, $0.35, up $0.10)
Entry Price: $0.60 (4/10/2015)
Exit Target: $1.20
Return: -42%
Stop Target: None
Action: Resistance is at $23.50-$24. Support is at $23.
Rigel Pharmaceuticals (RIGL, $4.16, up $0.07)
RIGL June 5 calls (RIGL150619C00005000, $0.40, flat)
Entry Price: $0.25 (3/31/2015)
Exit Target: $0.75-$1.00
Return: 60%
Stop Target: None
Action: Resistance is at $4.20-$4.25. Continued closes above these levels would be bullish for a possible run to $4.50-$5. Support is at $3.80-$3.60 on a close below $4.
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.
Marvell Technology (MRVL) May 18 calls (from February 2015) — The sector could see heated M&A activity in the coming months, and MRVL tends to move on takeover chatter — 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.
Cypress Semiconductor (CY) June 16 calls (from March 2015) — Earnings are due out next Thursday, April 30 — Continue to hold.
Trade on!
Rick Rouse
Editor and Chief Options Strategist
Momentum Options