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Archive for July, 2021

As Easy as ABT

Sunday, July 25th, 2021

Abbott Laboratories (ABT) reported earnings before the bell on Thursday that beat top- and bottom line estimates. Moreover, the medical device, diagnostics and nutrition company beat expectations across all major business segments. While impressive year-over-year comparisons were helped by depressed activity a year ago, sales grew by 11% compared to 2019. Analysts were notably impressed, and many upgraded their price targets to as high as $136 (the stock closed at $121 on Friday).

The stock dropped on Thursday as much as 2.6% but recovered to close above its 20-day moving average (blue line in chart). This trendline has provided unwavering support since the stock climbed above it in late June. This is part of a larger rally that has covered 15% since the beginning of June. Friday’s 2% jump pulled the stock above the 120 level (red line in chart), which has served as a top since early May. The next sight of potential resistance is 125, the site of April’s high. After that is ABT’s all-time high of 128.54 reached in mid-February.

ABT Chart

If you agree that ABT will stay above its 20-day moving average, consider the following trade that relies on the stock remaining above 118 (green line in chart) through expiration in five weeks.

Buy to Open ABT 27Aug 115 put (ABT210827P115)
Sell to Open ABT 27Aug 118 put (ABT210827P118) for a credit of $0.90 (selling a vertical)

This credit is $0.03 less than the mid-point of the option spread when ABT was trading at $121. 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 $88.70. This trade reduces your buying power by $300 and makes your net investment $211.30 ($300 – $88.70).  If ABT closes above $118 on August 27, both options will expire worthless and your return on the spread would be 42% ($88.70 / $211.30).

Clean Up with Cintas (CTAS)

Sunday, July 18th, 2021

Cintas (CTAS) may not be in an exciting business – the company provides uniforms, cleaning and restroom supplies, first aid supplies and fire extinguishers – but its recent earnings report was anything but boring. The company easily beat profit forecasts and slightly beat sales projections. Even the low end of the company’s projected EPS range for fiscal 2022 is well above the analyst estimate. The only smudge on the report was the projected sales estimate, which came in below forecasts. Nevertheless, the report was greeted with a slew of target price increases that ranged as high as $450 (the stock closed on Friday at $386).

The initial reaction to the earnings was a 2.6% drop on Thursday. But the stock popped 4.6% on Friday, resuming its recent breakout above a trading range that has dominated in 2021. More importantly, the shares found strong support at the 365 level (red line in chart), which has defined the top of the trading range going back to November. CTAS trades only monthly options in 10-point increments, so we’re using the 380 short strike (green line) for a put credit spread. This is just above the stock’s 20-day moving average (blue line).

CTAS Chart

If you agree that CTAS will stay above its 20-day moving average, consider the following trade that relies on the stock remaining above 380 through expiration in five weeks.

Buy to Open CTAS 20Aug 370 put (CTAS210820P370)
Sell to Open CTAS 20Aug 380 put (CTAS210820P380) for a credit of $3.15 (selling a vertical)

This credit is $0.05 less than the mid-point of the option spread when CTAS was trading at $386. 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 $313.70. This trade reduces your buying power by $1,000 and makes your net investment $686.30 ($1,000 – $313.70).  If CTAS closes above $380 on August 20, both options will expire worthless and your return on the spread would be 46% ($313.70 / $686.30).

Micron Technology (MU) At Double-Barreled Support

Sunday, July 11th, 2021

Flash memory and semiconductor producer Micron Technology (MU) reported Q3 earnings last week that easily topped Street estimates. Earnings hit $1.88 per share, more than double from a year earlier and 10% greater than the consensus analyst estimate. Revenues jumped 36% from the year before and beat the estimate by $160 million. Moreover, MU expects further gains in Q4 that are well above analysts’ projections. The reaction from the Street was modestly positive, though there were some concerns over MU’s cost structure.

The stock’s post-earnings price move was anything but positive. The shares fell 5.7% the day after the report and continued lower, bottoming at a 10.6% decline in Thursday’s trading. That low brought the stock to its 200-day moving average, which hasn’t been tested since last October. Friday was an encouraging day for MU, as the stock bounced 2% higher to log its best day since earnings. The 200-day sits at the 75 level, which is where we are placing the short put of our bullish credit spread as we look for trendline support to hold. Note also that the 75-76 area has provided strong support several times throughout 2021.

If you agree that MU will stay above its 200-day moving average, consider the following trade that relies on the stock remaining above 75 through expiration in six weeks.

Buy to Open MU 20Aug 72.5 put (MU210820P72.5)
Sell to Open MU 20Aug 75 put (MU210820P75) for a credit of $0.60 (selling a vertical)

This credit is $0.04 less than the mid-point of the option spread when MU was trading at $78.74. 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 $58.70. This trade reduces your buying power by $250 and makes your net investment $191.30 ($250 – $58.70).  If MU closes above $75 on August 20, both options will expire worthless and your return on the spread would be 31% ($58.70 / $191.30).

Facebook (FB) Wins in Court and on the Charts

Monday, July 5th, 2021

Facebook (FB) scored a big win in court this week when a federal judge threw out two complaints – one from the FTC and one from several state attorneys general – that it violated antitrust laws. Antitrust clouds have been looming over FB and its mega-giant tech brethren for some time, yet these stocks keep on ticking. FB reacted to the news by hitting an all-time high. But the stock was in rally mode well before the court win, gaining 40% in the past four months. Love it or hate it, FB has a deep roster of legal and lobbying talent that will draw out the regulatory process, if not water it down in the end … whenever that might be.

In the meantime, the stock keeps on chugging. In fact, FB’s market cap crossed the $1 trillion mark this week. If the market is a forward-looking mechanism, then it doesn’t appear too worried that regulators will ultimately prevail. Looking at the options market, out-of-the-money calls are priced higher than the corresponding puts in the 21 Jan 22 series, suggesting that the market sees more upside. The 20-day moving average, which is at 340, has guided the current rally since March. The stock is currently 4% above this trendline, so we’ll use this as the basis for our put credit spread.

If you agree that FB will stay above its 20-day moving average, consider the following trade that relies on the stock remaining above 340 through expiration in seven weeks. Note that FB reports earnings on July 28.

Buy to Open FB 20Aug 335 put (FB210820P335)
Sell to Open FB 20Aug 340 put (FB210820P340) for a credit of $1.50 (selling a vertical)

This credit is $0.07 less than the mid-point of the option spread when FB was trading just below $355. 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 $148.70. This trade reduces your buying power by $500 and makes your net investment $351.3 ($500 – $148.70).  If FB closes above $340 on August 20, both options will expire worthless and your return on the spread would be 42% ($138.70 / $261.30).

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