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Archive for the ‘Earnings Announcement Options Strategy’ Category

Darden Restaurants (DRI) Earnings Keep Rally Going

Monday, March 29th, 2021

On Thursday, DRI – whose brands include Olive Garden, Longhorn Steakhouse and The Capital Grille – reported earnings that blew out expectations on both revenue and profits. The company also announced that its dividend would more than double along with a $500 million share repurchase program. The news was warmly greeted by the Street, which showered the dine-in chain conglomerate with a slew of target price increases that ranged as high as $165 (the stock closed Friday at $149). The shares gained more than 11% in the two days following the earnings news, hitting yet another all-time high on Friday.

To say DRI is in rally mode would be a gross understatement. Since bottoming last April, the stock has rocketed 245% higher. Already this year, DRI has gained 25%. The rally has proceeded largely along DRI’s 20-day moving average, with the 50-day moving average lending support on pullbacks. With strong fundamentals in place and a recent uptick in same-store sales, there’s ample reason to believe the rally should continue as customers return to DRI’s varied dining rooms.

DRI Chart March 2021 - Earnings Beat Expectations

DRI Chart March 2021

If you agree that DRI’s rally has legs, consider the following trade that relies on the stock remaining above $145 through expiration in eight weeks.

Buy to Open DRI 21May21 140 Put (DRI210521P140)
Sell to Open DRI 21May21 145 Put (DRI210521P145) for a credit of $1.90 (selling a vertical)

This credit is $0.05 less than the mid-point of the option spread when DRI was trading just below $149. 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 $188.70. This trade reduces your buying power by $500 and makes your investment $311.30 ($500 – $188.70).  If DRI closes above $145 on May 21, both options will expire worthless and your return on the spread would be 61% ($188.70 / $311.30).

As with all investments, you should only make option trades with money that you can truly afford to lose.

Happy trading,

Terry

Sea Limited (SE) is Full Steam Ahead

Monday, March 15th, 2021

SE is an online gaming and multimedia entertainment company based in Singapore. The company reported earnings in early March that missed estimates on earnings but beat on revenue on a 72% increase from a year earlier while Q4 bookings more than doubled. The stock initially popped following the day of the report but finished flat. SE was then caught up in the tech pullback that pulled the shares 28% lower in just three weeks.

That’s the bad news. The much better news is that the shares found solid support at their 20-week moving average, a trendline that was the site of a reversal higher almost exactly a year ago. The 20-week has been instrumental in guiding the stock on a monster rally that has produced an 8-fold increase in the past year. The recent correction, while dramatic, appears to be done as the stock has gained 14% off the bottom in just the past four days. In short, the rally remains intact and looks to have legs.

SE Chart March 2021 - Huge Q4 Revenue

SE Chart March 2021

If you agree that SE’s uptrend will continue, consider the following trade that relies on the stock remaining above $220 through expiration in five weeks.

Buy to Open SE 16Apr21 210 Put (SE210416P210)
Sell to Open SE 16Apr21 220 Put (SE210416P220) for a credit of $3.90 (selling a vertical)

This credit is $0.10 less than the mid-point of the option spread when SE was trading at $235. 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 $388.70. This reduces your buying power by $1,000 and makes your investment $611.30 ($1,000 – $388.70).  If SE closes above $220 on April 16, both options will expire worthless, and your return on the spread would be 63% ($388.70 / $611.30), or 611% annualized.

As with all investments, you should only make option trades with money that you can truly afford to lose.

Happy trading,

Terry

Kohls (KSS) Solid Earnings Keeps Rally Alive

Monday, March 8th, 2021

It wasn’t that long ago that KSS was given up for dead. At the bottom of last year’s plunge in late March, the stock bottomed out below $11. Retail was in trouble. Today, the stock is up five-fold after a blowout earnings report this past week. Earnings more than doubled the analyst estimate. And though revenue declined, the final tally beat estimates as well. And earnings in the year ahead also exceeded analyst expectations.

Despite KSS’s recent performance, the analyst community remains skeptical. While there were several target prices increases, the new prices were not that far from the current price. Moreover, there were no upgrades. Just a third of the covering analysts rate KSS a buy, which is hard to justify given that the stock is up 36% this year alone (SPY is up less than 3%). As analysts eventually warm to the shares, there is plenty of room for future upgrades that could give the stock a boost.

KSS’s chart shows the 20-day moving average as the primary support trendline. In fact, there have been just three daily closes below the 20-day in the past four months. Note that the short strike of our credit spread (red line below) lies below the 20-day, so the stock would have to pierce this support for the spread to move into the money.

KSS Chart March 2021 - Post Earnings Options

KSS Chart March 2021

If you agree KSS’s uptrend will continue, consider the following trade that relies on the stock remaining above $52.50 through expiration in six weeks.

Buy to Open KSS 16Apr21 50 Put (KSS210416P50)
Sell to Open KSS 16Apr21 52.5 Put (KSS210416P52.5) for a credit of $0.85 (selling a vertical)

This credit is $0.02 less than the mid-point of the option spread when KSS was trading at $55.69. 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 reduces your buying power by $250 and makes your investment $166.30 ($250 – $83.70).  If KSS closes above $52.50 on April 16, both options will expire worthless, and your return on the spread would be 50% ($83.70 / $166.30), or 436% annualized.

As with all investments, you should only make option trades with money that you can truly afford to lose.

Happy trading,

Terry

Consider Adobe (ADBE) After the Latest Earnings Report

Monday, December 14th, 2020

This week we are looking at another of the Investor’s Business Daily (IBD) Top 50 List companies.  We use this list in one of our options portfolios to spot outperforming stocks and place option spreads that take advantage of the momentum.

ADBE has been a regular on the IBD Top 50 list over the past few years and is a favorite among analysts. Check out what the following two reports have to say about it – This Is Adobe’s Must-Hold Support Level if You Buy the Earnings Dip and Adobe (ADBE) Perfectly Positioned for New Highs.

Technicals

Both of the articles linked above discuss a technical outlook for ADBE and for good reason. The stock trades near several moving averages on a daily chart and is also testing support from a rising trendline that originates from a low posted in early November. It’s rare to see such a strong confluence of support lining up in this way and considering the strength this stock has displayed over the years, the odds favor a move to the upside from this point.

ADBE Chart December 2020

ADBE Chart December 2020

If you agree there’s further upside ahead for ADBE, consider this trade which relies on the stock remaining above $475 through the expiration in five weeks.

Buy To Open ADBE 22JAN21 472.5 Puts (ADBE210122P472.5)
Sell To Open ADBE 22JAN21 475 Puts (ADBE210122P475) for a credit of $1.18 (selling a vertical)

This credit is $0.02 less than the mid-point of the option spread when ADBE was trading near $476.  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 $116.70. This reduces your buying power by $250 and makes your investment $133.30 ($250 – $116.70).  If ADBE closes at any price above $475 on January 22, both options will expire worthless, and your return on the spread would be 88% ($116.70 / $133.30), or 1004% annualized.

Changes to Investor’s Business Daily (IBD) Top 50 This Week:

IBD Underlying Updates December 12, 2020

IBD Underlying Updates December 12, 2020

We have found that the Investor’s Business Daily Top 50 List has been a reliable source of stocks that are likely to move higher in the short run.  Recent additions to the list might be particularly good choices for this strategy, and deletions might be good indicators for exiting a position that you might already have on that stock.

As with all investments, you should only make option trades with money that you can truly afford to lose.

Happy trading,

Terry

Palo Alto Networks (PANW) Soars Following Earnings Beat

Monday, November 23rd, 2020

This week we are looking at another of the Investor’s Business Daily (IBD) Top 50 List companies.  We use this list in one of our options portfolios to spot outperforming stocks and place option spreads that take advantage of the momentum.

PANW rallied to fresh all-time highs after first-quarter earnings and revenue surpassed analyst expectations. In addition to the earnings report, Palo Alto Networks is acquiring a cybersecurity company that stands to boost its competitive edge. The following two articles provide more detail – BofA Turns Bullish On Palo Alto Networks After Q1 Beat and Palo Alto Networks: Why Expanse Is A Game Changer.

Technicals

Monday’s earnings report offered the catalyst for a bullish break of a flag pattern that had been forming for several months. The technical break signals a bullish continuation of the trend that took place in the second and third quarter. PANW has shown a steady rise in upward momentum since the start of the month and investors may look to continue buying on shallow dips.

PANW Chart November 2020 - All time high

PANW Chart November 2020

If you agree there’s further upside ahead for PANW, consider this trade which relies on the stock remaining above the $290 level through the expiration in six weeks.

Buy To Open PANW 31DEC20 285 Puts (PANW201231P285)
Sell To Open PANW 31DEC20 290 Puts (PANW201231P290) for a credit of $2.05 (selling a vertical)

This credit is $0.02 less than the mid-point of the option spread when PANW was trading near $292.  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 $203.70. This reduces your buying power by $500 and makes your investment $296.30 ($500 – $203.70).  If PANW closes at any price above $290 on December 31, both options will expire worthless, and your return on the spread would be 69% ($203.70 / $296.30), or 646% annualized.

Changes to Investor’s Business Daily (IBD) Top 50 This Week:

IBD Underlying Updates November 21, 2020

IBD Underlying Updates November 21, 2020

We have found that the Investor’s Business Daily Top 50 List has been a reliable source of stocks that are likely to move higher in the short run.  Recent additions to the list might be particularly good choices for this strategy, and deletions might be good indicators for exiting a position that you might already have on that stock.

As with all investments, you should only make option trades with money that you can truly afford to lose.

Happy trading,

Terry

Investors Flock to Facebook (FB) Post-Election

Monday, November 9th, 2020

This week we are looking at another of the Investor’s Business Daily (IBD) Top 50 List companies.  We use this list in one of our options portfolios to spot outperforming stocks and place option spreads that take advantage of the momentum.

Facebook rose sharply higher in the past week for a gain of 11.5%. The following two articles discuss the rationale behind the move and its implications – 3 Stocks That Are Big Winners After The U.S. Election and Best Mutual Funds Buy Up FANG Stocks Amazon, Alphabet, Facebook.

Technicals

The price action points to the same narrative as suggested by the articles mentioned above. There was a large move lower ahead of the election, likely attributed to investors covering their position ahead of the election. But then the rally in the past week catapulted FB to a new 2-month high, signaling a clear shift in sentiment from the earlier uncertainty. Further, FB’s outperformance compared to the broader markets during this time shows that it remains a favorite among investors. Near-term support is seen at $284 as the price point acted as resistance last month. The strong show of buying as of late suggests that near-term dips will be shallow, but if FB dips below $284, further support is seen at the 50-Day moving average. This moving average falls near a rising trendline that originates from a low printed in late June.

FB Chart November 2020 - Post election spike FANG

FB Chart November 2020

If you agree there’s further upside ahead for FB, consider this trade which relies on the stock remaining above the $292.5 level through the expiration in five weeks.

Buy To Open FB 11DEC20 290 Puts (FB201211P290)
Sell To Open FB 11DEC20 292.5 Puts (FB201211P292.5) for a credit of $1.08 (selling a vertical)

This credit is $0.02 less than the mid-point of the option spread when FB was trading near $293.  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 $106.70. This reduces your buying power by $250 and makes your investment $143.30 ($250 – $106.70).  If FB closes at any price above $292.5 on December 11, both options will expire worthless, and your return on the spread would be 74% ($106.70 / $143.30), or 844% annualized.

Changes to Investor’s Business Daily (IBD) Top 50 This Week:

IBD Underlying Updates November 7, 2020

IBD Underlying Updates November 7, 2020

We have found that the Investor’s Business Daily Top 50 List has been a reliable source of stocks that are likely to move higher in the short run.  Recent additions to the list might be particularly good choices for this strategy, and deletions might be good indicators for exiting a position that you might already have on that stock.

As with all investments, you should only make option trades with money that you can truly afford to lose.

Happy trading,

Terry

Regeneron Pharmaceuticals (REGN) Retreats to Notable Technical Support

Monday, October 26th, 2020

This week we are looking at another of the Investor’s Business Daily (IBD) Top 50 List companies.  We use this list in one of our options portfolios to spot outperforming stocks and place option spreads that take advantage of the momentum.

REGN has been in the spotlight ever since President Trump received its antibody treatment earlier this month, check out what the following two articles have to say about the company  – 3 COVID-19 Antibody Stocks That Are Leading the Race and Is Regeneron a Buy Before Nov. 3?

Technicals

Horizontal support at $562 is quite important for REGN as it acted as resistance back in 2015 to trigger a major reversal. The level has halted the decline that started over the summer and there are some signs that the upward cycle could continue once again. In addition to the horizontal level, there is a rising trendline in play that originates from the low in early September and the 200-Day moving average is rapidly rising to converge towards the $562 price point.

REGN Chart October 2020 - Top 3 Covid-19 Antibody Stock

REGN Chart October 2020

If you agree there’s further upside ahead for REGN, consider this trade which relies on the stock remaining above the $577.5 level through the expiration in five weeks.

Buy To Open REGN 27NOV20 577.5 Puts (REGN201127P577.5)
Sell To Open REGN 27NOV20 580 Puts (REGN201127P580) for a credit of $1.03 (selling a vertical)

This credit is $0.02 less than the mid-point of the option spread when REGN was trading near $580.  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 $101.70. This reduces your buying power by $250 and makes your investment $148.30 ($250 – $101.70).  If REGN closes at any price above $580 on November 27, both options will expire worthless, and your return on the spread would be 69% ($101.70 / $148.30), or 718% annualized.

Changes to Investor’s Business Daily (IBD) Top 50 This Week:

IBD Underlying Updates October 24, 2020

IBD Underlying Updates October 24, 2020

We have found that the Investor’s Business Daily Top 50 List has been a reliable source of stocks that are likely to move higher in the short run.  Recent additions to the list might be particularly good choices for this strategy, and deletions might be good indicators for exiting a position that you might already have on that stock.

As with all investments, you should only make option trades with money that you can truly afford to lose.

Happy trading,

Terry

DR Horton (DHI) Powers to Record High

Monday, October 5th, 2020

This week we are looking at another of the Investor’s Business Daily (IBD) Top 50 List companies.  We use this list in one of our options portfolios to spot outperforming stocks and place option spreads that take advantage of the momentum.

DHI is an outperformer in the markets. The stock closed at an all-time high in the past week while the S&P 500 would need to rally another 7% to achieve the same milestone. Check out what the following two analysts have to say about the stock – D.R. Horton (DHI) Gains As Market Dips: What You Should Know and D.R. Horton, LGI Homes In Buy Range, Lowe’s Sets Up As Coronavirus Fuels Housing Stocks

Technicals

DHI has posted gains in the last six straight months and shows renewed upward momentum after breaking above the August top. The stock was held lower by horizontal resistance at $75.60 in September and this same price point is now seen as downside support. There is also a rising trendline in play that shows further support in the $74-$74.50 range. Back in June, DHI hovered around its 20-day moving average for about a month before continuing the upward momentum. A similar pattern could be playing out now as the stock spent most of September consolidating around its 20 DMA.

DHI Chart October 2020 rising trend

DHI Chart October 2020

If you agree there’s further upside ahead for DHI, consider this trade which relies on the stock remaining above $77.50 level through the expiry in five weeks.

Buy To Open DHI 06NOV20 75 Puts (DHI201106P75)
Sell To Open DHI 06NOV20 77.5 Puts (DHI201106P77.5) for a credit of $0.89 (selling a vertical)

This credit is $0.02 less than the mid-point of the option spread when DHI was trading near $78.  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 $87.70. This reduces your buying power by $250 and makes your investment $162.30 ($250 – $87.70).  If DHI closes at any price above $77.50 on November 06, both options will expire worthless, and your return on the spread would be 54% ($87.70 / $162.30), or 616% annualized.

Changes to Investor’s Business Daily (IBD) Top 50 This Week:

IBD Underlying Updates October 3, 2020

IBD Underlying Updates October 3, 2020

We have found that the Investor’s Business Daily Top 50 List has been a reliable source of stocks that are likely to move higher in the short run.  Recent additions to the list might be particularly good choices for this strategy, and deletions might be good indicators for exiting a position that you might already have on that stock.

As with all investments, you should only make option trades with money that you can truly afford to lose.

Happy trading,

Terry

Should You Buy Amazon (AMZN) Following Its Earnings Report?

Monday, August 10th, 2020

This week we are looking at another of the Investor’s Business Daily (IBD) Top 50 List companies.  We use this list in one of our options portfolios to spot outperforming stocks and place option spreads that take advantage of the momentum.

Amazon had a strong quarter and the following two articles outline the earnings report and why the stock may head higher from here – Amazon (AMZN) Q2 Earnings and Revenues Top Estimates and Why Amazon Stock Climbed 14% Last Month.

Technicals

From a technical perspective, AMZN was held lower by a horizontal resistance level near $3250 on the rally that followed the recent earnings report. However, from a broader perspective, the stock has been firmly bid from a rising trendline that originates back to a low posted in March. Considering how long this trendline has been in place, and the long-term trend, the resistance at $3250 does not appear to be a big hurdle and it may only be a matter of time before this stock is trading at fresh all-time highs.

AMZN Chart August 2020 earnings announcment

AMZN Chart August 2020

If you agree there’s further upside ahead for AMZN, consider this trade which is a bet that the stock will continue to advance over the next five weeks, or at least not decline very much.

Buy To Open AMZN 11SEP20 3160 Puts (AMZN200811P3160)
Sell To Open AMZN 11SEP20 3165 Puts (AMZN200811P3165) for a credit of $2.40 (selling a vertical)

This price was $0.02 less than the mid-point of the option spread when AMZN was trading near $3165.  Unless the stock rallies quickly from here, you should be able to get close to this amount.

Your commission on this trade will only be $1.30 per spread.  Each contract would then yield $238.70 and your broker would charge a $500 maintenance fee, making your investment $261.30 ($500 – $238.70).  If AMZN closes at any price above $3165 on September 11, both options would expire worthless, and your return on the spread would be 91% (1038% annualized).

Changes to Investor’s Business Daily (IBD) Top 50 This Week:

IBD Underlying Updates August 8, 2020

IBD Underlying Updates August 8, 2020

We have found that the Investor’s Business Daily Top 50 List has been a reliable source of stocks that are likely to move higher in the short run.  Recent additions to the list might be particularly good choices for this strategy, and deletions might be good indicators for exiting a position that you might already have on that stock.

As with all investments, you should only make option trades with money that you can truly afford to lose.

Happy trading,

Terry

J2 Global (JCOM) – A Little-Known Stock Showing a lot of Strength

Monday, November 25th, 2019

There was an article published about J2 Global on SeekingAlpha in July that was titled “J2 Global is a Sleeper”. There’s a lot of truth to this, this stock is not very well known or covered in media but from the articles that are written about the company, quite a few of them have good things to say about it. Here are two of them – J2 Global’s Charts Send Bullish Signals and J2 Global (JCOM) Stock Analysis offering an attractive story

Technicals

JCOM has broken higher from a major technical pattern. The weekly chart below shows that the roughly $91 price point offered a major hurdle since the stock price first approached it in early 2017. After consolidating in a range below the level for more than two years, it finally broke higher last month. In the past week, there has been a pullback, offering an attractive entry with major support from the breakout point nearby. Breakouts like this tend to signal a significant upside considering it is on a weekly chart. The technical break should create demand among technical traders and keep the stock price bid, likely even ahead of the $91 breakout point.

JCOM Chart November 2019 vertical options spread

JCOM Chart November 2019

If you agree there’s further upside ahead for JCOM, consider this trade which is a bet that the stock will continue to advance over the next four weeks, or at least not decline very much.

Buy To Open JCOM 20DEC19 90 Puts (JCOM191220P90)
Sell To Open JCOM 20DEC19 95 Puts (JCOM191220P95) for a credit of $1.48 (selling a vertical)

This price was $0.02 less than the mid-point of the option spread when JCOM was trading near $95.  Unless the stock rallies quickly from here, you should be able to get close to this amount.

Your commission on this trade will only be $1.30 per spread.  Each contract would then yield $146.70 and your broker would charge a $500 maintenance fee, making your investment $353.30 ($500 – $146.70).  If JCOM closes at any price above $95 on December 20, both options would expire worthless, and your return on the spread would be 42% (613% annualized).

Changes to Investor’s Business Daily (IBD) Top 50 This Week:

IBD Underlying Updates November 23, 2019

IBD Underlying Updates November 23, 2019

We have found that the Investor’s Business Daily Top 50 List has been a reliable source of stocks that are likely to move higher in the short run.  Recent additions to the list might be particularly good choices for this strategy, and deletions might be good indicators for exiting a position that you might already have on that stock.

As with all investments, you should only make option trades with money that you can truly afford to lose.

Happy trading,

Terry

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Success Stories

I have been trading the equity markets with many different strategies for over 40 years. Terry Allen's strategies have been the most consistent money makers for me. I used them during the 2008 melt-down, to earn over 50% annualized return, while all my neighbors were crying about their losses.

~ John Collins