Dear Momentum Options Subscriber,
The bears came out strong at the open this morning to push the indices’ major support levels, but the bulls have bounced back and are trying to get back to even. With tech stuck in the mud, there is a chance that Cisco Systems (CSCO, $29.27, up $0.06) could provide a catalyst for higher highs on the Nasdaq.
The company will report its quarterly earnings after Wednesday’s close, and Wall Street is looking for $0.53 a share on revenue north of $12 billion. Over the years, Cisco has become the king of the “penny beat.” Over the past four quarters, they have topped expectations by $0.02, $0.01, $0.02 and $0.03, respectively.
I have followed Cisco Systems for a couple of decades and have traded the name over the years. I do not have a current position in the stock, but its long-time CEO, John Chambers, has done an incredible job of creating shareholder wealth during his tenure with the company.
The recent announcement that he is leaving wasn’t a big surprise, but it made a lot of headlines. His successor, Chuck Robbins, has been groomed to take over the title, and the transition should have no impact on the stock.
With that said, I don’t believe that Chambers will let Wall Street down when the company releases its numbers. He likely has one more, possibly two, conference call updates, so I’m expecting him to say some really good things about the company’s future.
The passing of the baton won’t take effect until late July. Chambers will assume the role of executive chairman and will still serve on Cisco’s board. He is a big believer in Robbins and recently said its new incoming CEO can help the company to grow faster than he could have.
I have been watching CSCO’s chart since last week for a possible earnings trade, but the options have become a little pricey going into the announcement.
The bullish side of me was thinking that CSCO shares could make a run past $30, and I was targeting the CSCO June 30 calls (CSCO150619C00030000, $0.63, up $0.07) for a possible trade.
The CSCO May 30 calls (CSCO150515C00030000, $0.40, up $0.05) expire this week and would require shares to make a move above $30.40 just to break even on the trade.
The chart shows that shares are holding their 50-day moving average, but that indicator is curling lower. The stock has a chance of moving 5% based on the company’s earnings results.
The CSCO June 28 puts (CSCO150619P00028000, $0.44, down $0.01) could be used to play a downside move in the stock or to create a strangle option trade with the CSCO June 30 calls.
There are also weekly options available to trade on CSCO. The combinations of trades are intriguing, but I will likely be sitting on the sidelines despite how tempting they look.
As far as the market, the Dow is down 2 points to 18,103, and the S&P 500 is off 3 points to 2,102. The Nasdaq is declining 2 points to 4,991, while the Russell 2000 is lower by 4 points to 1,231.
I have updated our current trades below, and there is a chance I could have a new trade ahead of the close. For now, let’s go check out the action.
Momentum Options Play List
Closed Momentum Options Trades for 2015: 47-15-1 (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 1:20 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.
Sony (SNE, $31.59, up $0.75)
SNE June 32 calls (SNE150619C00032000, $1.10, up $0.30)
Entry Price: $0.70 (5/8/2015)
Exit Target: $1.40
Return: 57%
Stop Target: None
Action: Shares have traded to a high of $31.76, and I would like to see $31.50 hold into the close. The recent 52-week high is at $32.60.
Wells Fargo (WFC, $55.41, down $0.10)
WFC June 57.50 calls (WFC150619C00057500, $0.28, down $0.01)
Entry Price: $0.31 (5/4/2015)
Exit Target: $0.65
Return: -10%
Stop Target: None
Action: Near-term support is at $55.50. There is additional help at $54.50 and the 50-day moving average. Resistance is at $56.
Limelight Networks (LLNW, $4.08, up $0.01)
LLNW September 4 calls (LLNW150918C00004000, $0.60, flat)
Entry Price: $0.35 (4/29/2015)
Exit Target: $0.80 (Limit Order on half)
Return: 71%
Stop Target: $0.40 (Stop Limit)
Action: Shares have traded to a high of $4.10 today. Resistance is at $4.20-$4.25. Support is at $3.80 on another close below $4.
You can read my full update on LLNW in the May 1 Pre-Market Update.
Opko Health (OPK, $14.83, up $0.53)
OPK June 16 calls (OPK150619C00016000, $0.35, up $0.05)
Entry Price: $0.50 (4/27/2015)
Exit Target: $1.00
Return: -30%
Stop Target: None
Action: Shares are at session highs, and I would love to see a close above $15.
Dot Hill Systems (HILL, $6.85, down $0.14)
HILL September 7.50 calls (HILL150918C00007500, $0.60, flat)
Entry Price: $0.45 (4/20/2015)
Exit Target: $1.35-$1.80
Return: 33%
Stop Target: None
Action: Today’s peak has reached $7, and continued closes above $7 would be bullish for a run to $7.25. Support is at $6.75-$6.50.
Trades on Hold — other 2015 Portfolio Open positions (2): 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) — Resistance is at $32.75 and the 50-day moving average. Support is at $30 — 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