Pandemic? What pandemic? FL, the ultimate in a brick-and-mortar, mall-based store, has been a monster performer this year. The stock is up a gawdy 50% and has more than doubled since last August. The company reported stellar earnings on Friday before the bell that easily topped expectations. Earnings came in at $1.93 per share compared to the $1.12 consensus analyst estimate. Sales hit $2.15 billion, which made the $1.9 billion estimate look silly. Of course, sales were higher than a year ago during the pandemic. What’s impressive is that FL topped its 2019 Q1 performance as well.

Prior to earnings, the stock dropped nearly 13% in three days after hitting a two-year high on Tuesday. But FL rebounded on Friday, gaining 2%. More importantly, the shares found solid support at their 50-day moving average. This trendline has been instrumental in supporting FL’s nine-month rally. In fact, the stock has closed below the 50-day just twice since late August. Currently, the 50-day sits at 59, while the stock is just below 61. At the current rate of incline, the 50-day should be around 60, which is where we’re playing an aggressive credit spread.

If you agree that FL will stay above its 50-day moving average, consider the following trade that relies on the stock remaining above $60 through expiration in eight weeks.

Buy to Open FL 16Jul 57.5 Put (FL210716P57.5)
Sell to Open FL 16Jul 60 Put (FL210716P60) for a credit of $1.00 (selling a vertical)

This credit is $0.05 less than the mid-point of the option spread when FL was trading just below $61. Unless the stock rallies quickly from here, you should be able to get close to this amount.

Your commission on this trade will be only $1.30 per spread.  Each spread would then yield $98.70. This trade reduces your buying power by $250 and makes your net investment $151.30 ($250 – $98.70).  If FL closes above $60 on July 16, both options will expire worthless and your return on the spread would be 65% ($98.70 / $151.30).

On Tuesday after the bell, EA stepped into the earnings confessional. Results on the top and bottom lines lagged analyst expectations, but bookings came in higher than company estimates. Moreover, EA upped its guidance for FY 2022, as user base growth achieved during the pandemic is expected to remain intact. The Street appeared confused by the report, as the news was greeted by a mix of modest target price increases and decreases. However, the important number is the average $163 target, which is 17% above Friday’s closing price. 

Though the Street appeared mostly relieved that EA’s post-lockdown slump was less than feared, the stock fell for three straight days. But the fall covered a modest 2%, as daily lows were well supported by the 50-day moving average. This trendline, which is turning higher for the first time in two months, sits above the $137 level. Meanwhile, the 200-day moving average is in place above $135. With this solid downside support in play, we are looking at a credit spread with the short strike below the 200-day at the 135 strike.

If you agree that EA will stay above its 200-day moving average, consider the following trade that relies on the stock remaining above $135 through expiration in five weeks.

Buy to Open EA 18Jun21 130 Put (EA210618P130)
Sell to Open EA 18Jun21 135 Put (EA210618P135) for a credit of $1.20 (selling a vertical)

This credit is $0.06 less than the mid-point of the option spread when EA was trading at $138.62. Unless the stock rallies quickly from here, you should be able to get close to this amount.

Your commission on this trade will be only $1.30 per spread.  Each spread would then yield $118.70. This trade reduces your buying power by $500 and makes your net investment $381.30 ($500 – $118.70).  If EA closes above $135 on June 18, both options will expire worthless and your return on the spread would be 31% ($118.70 / $381.30).

On Wednesday, PYPL blew past earnings estimates, as profits jumped 84% from a year earlier. The EPS of $1.22 easily beat the consensus analyst estimate of $1.02. Revenue was up 29%, also beating expectations. For good measure, the company upped its guidance for 2021. The news was greeted by several target price updates. The average price target is now above $317, which is 25% above Friday’s close.

Although the stock is up about 2% since earnings, it hasn’t blown anyone’s hair back so far in 2021, as the shares are up only 8%. In fact, they’ve been flat for 3-1/2 months. But a longer-term view shows the stock’s monster uptrend since the March 2020 bottom – it’s more than tripled – is alive and well. The rising 20-week moving average has guided the rally nearly perfectly, allowing just three weekly closes below it during the past year. This trendline is sitting near 255, so we’re looking at a put credit spread with the short put sitting below the 20-week.

If you agree that PYPL will stay above its 20-week moving average, consider the following trade that relies on the stock remaining above $250 through expiration in six weeks.

Buy to Open PYPL 18Jun21 240 Put (PYPL210618P240)
Sell to Open PYPL 18Jun21 250 Put (PYPL210618P250) for a credit of $3.60 (selling a vertical)

This credit is $0.05 less than the mid-point of the option spread when PYPL was trading at $253. Unless the stock rallies quickly from here, you should be able to get close to this amount.

Your commission on this trade will be only $1.30 per spread.  Each spread would then yield $358.70. This trade reduces your buying power by $1,000 and makes your net investment $641.30 ($1000 – $358.70).  If PYPL closes above $250 on June 18, both options will expire worthless and your return on the spread would be 56% ($358.70 / $641.30).

On Thursday, CAT did something it’s done for the past three quarters – it easily topped earnings estimates. The company reported $2.87 in adjusted earnings versus the projected $1.95. Sales ($11.9 billion) also soared past estimates ($10.5 billion). The numbers were well received by Wall Street, as a couple of brokerages raised their target prices. But analysts overall are less than enthusiastic toward the stock, with more than half rating the shares a hold or sell. That seems at odds with the stock’s performance, however. CAT has more than doubled off a low from last May and is up 25% for the year. The stock should benefit as more analysts come to their senses and jump on CAT’s bandwagon with upgrades.  

Despite the impressive performance and target price increases, CAT is down 2% since earnings. But this is a good thing. Why? For the fourth straight quarter, CAT declined after blowout earnings. But in each of the previous three quarters, the decline was perfectly supported by the rising 50-day moving average. In fact, the stock has closed below this trendline just two times going all the way back to mid-May of last year. The 50-day is currently sitting just above the $226 level. Given the previous post-earnings pullbacks to this support, we’re looking at a credit spread with the short strike below the 50-day.

If you agree that CAT will stay above its 50-day moving average, consider the following trade that relies on the stock remaining above $225 through expiration in five weeks.

Buy to Open CAT 4Jun21 222.5 Put (Cat210604P222.5)
Sell to Open CAT 4Jun21 225 Put (Cat210604P225) for a credit of $0.85 (selling a vertical)

This credit is $0.02 less than the mid-point of the option spread when CAT was trading at $228. Unless the stock rallies quickly from here, you should be able to get close to this amount.

Your commission on this trade will be only $1.30 per spread.  Each spread would then yield $83.70. This trade reduces your buying power by $250 and makes your net investment $166.30 ($250 – $83.70).  If CAT closes above $225 on June 4, both options will expire worthless and your return on the spread would be 50% ($83.70 / $166.30).