Dear Momentum Options Subscriber,
Shares of Microsoft (MSFT, $40.14, down $0.58) are on the verge of cracking $40, which is a level I have been watching like a hawk for a few months. A drop below this level would likely get the 52-week low of $38.51 and possibly the mid-$30s in play.
Earnings are due to be released on April 23, so there is added risk to any potential option trade, as shares will likely be active on the announcement.
Wall Street is expecting the company to earn $0.26 a share on revenue of $21.16 billion. Given the continued weakness in PC demand and the recent Intel (INTC) warning, Microsoft might have a hard time meeting the suit-and-ties’ forecasts.
It’s hard to bet against “Mr. Softie,” but shares are looking soft. Besides a weakening fundamental outlook, the chart is also flashing bearish signals, with a “death cross” taking place after failed attempts at clearing its 50-day moving average. A death cross occurs when the 50-day moving average falls below the 200-day moving average.
The early-February intraday low reached $40.23, and a break below $40 could lead to additional selling pressure on fresh 2015 lows.
The April call options expire two weeks from Friday on April 17. While these options could be used to play a drop below $40, they would expire before a possible earnings miss.
The MSFT May 38 puts (MSFT150515P00038000, $0.65, up $0.10) look like a sweet way to play a pending breakdown.
The MSFT June 37 puts (MSFT150619P00037000, $0.55, up $0.02) also look attractive and would lessen the blow of a potential earnings beat and rebound to $43.
Obviously, if shares hold $40, or bounce back to $42-$42.50, we will have to continue to wait.
I often talk about having a Watch List and the reasons for taking a trade, and these options offer great risk/reward — if MSFT closes below $40. I like to use fundamental and technical analysis for all of my trades, and it blows my mind when any of the talking heads say they don’t do one or the other, or both.
Doing both provides a much better outlook and more reasons to like or not like a trade. Given the setup, I wanted everyone to know the game plan in advance, as this could be one of our new trades next week.
As far as the market, the Dow is up 55 points to 17,753, while the S&P 500 is higher by 7 points to 2,067. The Nasdaq is gaining 9 points to 4,889, and the Russell 2000 is climbing 4 points to 1,255. The S&P Volatility Index ($VIX, 14.69, down 0.42) is back below 15, which could be a very bullish sign for next week if this level holds into the close.
It has been another busy week, and I’m looking forward to the three-day weekend. The market is closed on Friday in observance of the Good Friday holiday, so I will not be publishing any updates tomorrow.
Monday’s Pre-Market Update will be a full edition, but it may be a little shorter in nature, as I plan to get some rest and get ready for battle in April.
I spent the past two weeks limiting our exposure while plotting our next batch of trades and game plan. I was hoping to get the perfect setup ahead of the break and Easter weekend, and it looks like the market is giving us one. Take the time yourselves to enjoy the weekend and hopefully some warmer weather, and I will talk to you again on Monday.
Momentum Options Play List
Closed Momentum Options Trades for 2015: 30-9-1 (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 1:30 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.
US Steel (X, $24.43, up $0.58)
X May 21 puts (X150515P00021000, $0.65, down $0.10)
Entry Price: $0.60 (3/26/2015)
Exit Target: $1.20
Return: 13%
Stop Target: $0.68 (Stop Limit)
Action: The Stop Limit of $0.68 has triggered following today’s run at $24.50, and we are now out of the trade.
Rigel Pharmaceuticals (RIGL, $3.65, down $0.10)
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: Shares have traded up to $3.80 today. Resistance is at $3.80, followed by $4. The 52-week high is at $4.20. Support is at $3.40.
You can read more on this trade in the April 1 Pre-Market Update.
Cypress Semiconductor (CY, $13.98, up $0.06)
CY June 16 calls (CY150619C00016000, $0.37, flat)
Entry Price: $0.75 (3/18/2015)
Exit Target: $1.50
Return: -51%
Stop Target: None
Action: Support is at $13.75 and the 100-day moving average. A close below $13.50 would be bearish. Resistance is at $14-$14.25.
Trades on Hold — other 2015 Portfolio Open positions (4): 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.
Yahoo! (YHOO) April 47 calls (from February 2015) — Continue to hold.
Marvell Technology (MRVL) May 18 calls (from February 2015) — Continue to hold.
BlackBerry (BBRY) June 13 calls (from March 2015) — Continue to hold.
Gogo (GOGO) April 23 calls (from March 2015) — Continue to hold.
Trade on!
Rick Rouse
Editor and Chief Options Strategist
Momentum Options