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Archive for the ‘Stock Option Trading Idea Of The Week’ Category

No Progress Here

Sunday, October 17th, 2021

Amid the giddiness over solid earnings from the big banks, you may have missed the lousy earnings report from insurance giant Progressive (PGR) on Thursday morning. Earnings plunged 90% from a year ago and fell 10% shy of estimates. Revenue came up a billion dollars short of expectations. The company also swung to a loss in September due to payouts for Hurricane Ida. Analysts apparently weren’t paying attention, as there were no upgrades, downgrades or target price changes issued after the news.

The stock didn’t do much after the report, falling less than a percent on Thursday. On Friday, the shares gained that all back – and more – and closed right on their declining 20-day moving average. Despite the rebound, PGR has been trading sideways for three weeks after suffering a 6.2% drop in September that was guided by the 20-day. All relevant moving averages sit at or above the stock price, ready to lend resistance. We are therefore playing a bearish call credit spread with the short call sitting above PGR’s 20-day moving average.

If you agree that PGR will struggle with its 20-day moving average (blue line in chart) line in chart), consider the following trade that relies on the stock remaining below 92.5 (red line in chart)  (through expiration in five weeks.

Buy to Open PGR 19Nov 95 call (PGR211119C95)
Sell to Open PGR 19Nov 92.5 call (PGR211119C92.5) for a credit of $0.80 (selling a vertical)

This credit is $0.05 less than the mid-point of the option spread when PGR was trading at $91.25. Unless the stock falls 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 $78.70. This trade reduces your buying power by $250 and makes your net investment $171.30 ($250 – $78.70).  If PGR closes below $92.50 on November 19, both options will expire worthless and your return on the spread would be 46% ($78.70/$171.30).

Not Cloudy for Oracle

Monday, October 11th, 2021

Cloud infrastructure and software provider Oracle (ORCL) has been weathering the market’s recent storm better than most. While the broader market has struggled since the start of September – the S&P 500 is down 3% – ORCL has thrived, gaining 6%. In fact, the stock closed at a record high on Friday. That move pushed the shares above the top of a trading range between 85 and 92 that has been in place since early July.

ORCL’s recent earnings report on Sept. 13 was in line or beat both analyst estimates and guidance. The stock dropped 3% the day after the report, which is typical of the stock’s post-earnings performance. So is the subsequent strong recovery, as ORCL is up 9% since the initial drop.

Likely helping the cause were a few target price increases. It’s notable that analysts may be jumping on ORCL’s bandwagon. In September, just six of 30 (20%) covering analysts rated ORCL a buy or better. Today, 26 of 36 analysts (72%) are in the bullish camp.

We are playing a bullish put credit spread with the short put sitting just above ORCL’s 50-day moving average. This trendline will likely beak above the short strike at 90 in the next few days based on the stock’s recent strength.

If you agree that ORCL will stay above 50-day moving average ( (blue line in chart) line in chart), consider the following trade that relies on the stock remaining above 90 (red line in chart)  (through expiration in six weeks.

Buy to Open ORCL 19Nov 87.5 put (ORCL211119P87.5)
Sell to Open ORCL 19Nov 90 put (ORCL211119P90) for a credit of $0.45 (selling a vertical)

This credit is $0.03 less than the mid-point of the option spread when ORCL was trading above $94. Unless the stock rises 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 $43.70. This trade reduces your buying power by $250 and makes your net investment $206.30 ($250 – $43.70).  If ORCL closes above $90 on November 19, both options will expire worthless and your return on the spread would be 21% ($43.70/$206.30).

A Salesforce to be Reckoned With

Monday, September 20th, 2021

As its ticker symbol implies, Salesforce.com (CRM) provides cloud solutions for customer relationship management needs. CRM reported earnings in late August that blew away expectations on both the top and bottom lines. The report was met by the usual round of target price increases that reached as high as $340 (CRM closed at $260 on Friday).

The stock gapped higher after the report and extended as much as 5.5% higher the next day, eventually closing with a 2.5% gain. But the shares then sagged, joining the rest of the market in the early-September swoon. In fact, CRM fell more than 8% from its post-earnings high.

But the shares appeared to find a bottom last week, thanks to the support of the 50-day moving average. Since turning higher in May, the 50-day has supported pullbacks in July and August. CRM has been stepping higher since a low in early March, putting in a series of higher highs and lows in a rally that has covered nearly 30%. This trade is relying on this trendline support holding for the next six weeks, as the short 250 put of our credit spread is just below the 50-day.

If you agree that CRM will stay above the 50-day moving average (blue line in chart), consider the following trade that relies on the stock remaining above 250 (red line in chart) through expiration in six weeks.

Buy to Open CRM 29Oct 245 put (CRM211029P245)
Sell to Open CRM 29Oct 250 put (CRM211029P250) for a credit of $1.10 (selling a vertical)

This credit is $0.02 less than the mid-point of the option spread when CRM was trading at $260. 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 $108.70. This trade reduces your buying power by $500 and makes your net investment $391.30 ($500 – $108.70).  If CRM closes above $250 on October 29, both options will expire worthless and your return on the spread would be 27% ($108.70 / $391.30).

Going Once, Going Twice … Sold on CPRT

Monday, September 13th, 2021

Going Once, Going Twice … Sold on CPRT

Copart (CPRT) provides online auction and vehicle remarketing services in the U.S. and several other countries. On Wednesday, the company reported Q4 earnings that easily beat on the top and bottom lines. Used car prices are soaring and CPRT is positioned perfectly to leverage the market. Analysts seem to agree, as CPRT received several target price increases that ranged up to $165 (CPRT closed at $143 on Friday). Despite the positive news, the stock fell as much as 5% on Thursday before closing 2% lower. However, CPRT gained more than a percent on Friday amid a down market.

The stock has been in rally mode since late March, gaining more than 30%. The 50-day moving average has been instrumental in guiding the uptrend, containing pullbacks in May, June and August. The trendline appears to be doing its job again, as it supported this week’s post-earnings drop. This trade is relying on this support holding for the next five weeks as the short 140 put of our credit spread is just below the 50-day.

If you agree that CPRT will stay above the 50-day moving average (red line in chart), consider the following trade that relies on the stock remaining above 140 (blue line in chart) through expiration in five weeks.

Buy to Open CPRT 15Oct 135 put (CPRT211015P135)
Sell to Open CPRT 15Oct 140 put (CPRT211015P140) for a credit of $1.20 (selling a vertical)

This credit is $0.05 less than the mid-point of the option spread when CPRT was trading at $143. 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 CPRT closes above $140 on October 15, both options will expire worthless and your return on the spread would be 31% ($118.70 / $381.30).

Get INTU This Trade

Tuesday, August 31st, 2021

Software developer (QuickBooks, TurboTax) Intuit (INTU) reported earnings on Aug. 24 that handily beat estimates on all fronts. Earnings came in at $1.97 per share, topping the analyst forecast by 24%, while quarterly revenue of $2.56 billion beat the estimate by 10%. The company also raised its quarterly and annual revenue and earnings guidance above expectations. To top it off, INTU raised its dividend and approved a new $2 billion repurchase authorization.

The Street clearly loved the report, as the stock was hit with several large target price increases (one raised the price 27%). The average new target price after these raises was around the $640 mark, which is 13% above INTU’s closing price on Friday.

The stock price took the news and target increases in stride, though, with no change on Thursday after the report. On Friday, the stock resumed its huge rally with a 2.4% gain. INTU is up nearly 50% in 2021, with most of that gain coming in the past 3-1/2 months. The shares have been riding along their 20-day moving average, a trendline that has not allowed one daily close below it since mid-May. The 20-day is currently at 541 but should cross above the 550 level in less than two weeks at its current pace. This is also the site of the short put strike of our credit spread.

If you agree that INTU will continue its rally along the 20-day moving average, consider the following trade that relies on the stock remaining above 550 through expiration in seven weeks.

Buy to Open INTU 15Oct 540 put (INTU211015P540)
Sell to Open INTU 15Oct 550 put (INTU211015P550) for a credit of $2.80 (selling a vertical)

This credit is $0.05 less than the mid-point of the option spread when INTU was trading at $566. 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 $278.70. This trade reduces your buying power by $1,000 and makes your net investment $721.30 ($1000 – $278.70).  If INTU closes above $550 on October 15, both options will expire worthless and your return on the spread would be 39% ($278.70 / $721.30).

The Sea is Rising

Tuesday, August 24th, 2021

Sea Limited (SE) is a digital entertainment company based in Singapore. SE reported earnings on Tuesday that showed a wider loss than expected but exceeded revenue estimates. In addition, the company raised its FY21 sales guidance. Wall Street clearly overlooked the profit miss, as several analysts raised their price targets to the $330-350 range (SE closed just above $309 on Friday).

SE has been on a monster run for 2-1/2 years. The stock is up 55% in 2021 and a whopping 27-fold since the end of 2018. More recently, the stock has been riding along the support of its 50-day moving average, a trendline it last closed below three months ago. Note that the short (sold) put strike of our credit spread (red line in chart) is just below the current location of the 50-day (blue line), which is 8.5% below the current stock price. Thus, this trade is relying on that support holding through the trade’s expiration in six weeks.

If you agree that SE will stay above its 50-day moving average, consider the following trade that relies on the stock remaining above 285 through expiration in six weeks.

Buy to Open SE 1Oct 280 put (SE21101P280)
Sell to Open SE 1Oct 285 put (SE21101P285) for a credit of $1.35 (selling a vertical)

This credit is $0.02 less than the mid-point of the option spread when SE was trading at $309. 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 $133.70. This trade reduces your buying power by $500 and makes your net investment $366.30 ($500 – $133.70).  If SE closes above $285 on October 1, both options will expire worthless and your return on the spread would be 37% ($133.70 / $366.30).

Don’t DIS This Trade

Sunday, August 15th, 2021

Walt Disney (DIS) reported solid earnings results after the bell on Thursday that beat analyst expectations on the top and bottom lines. Perhaps as important, subscriber growth to the Disney+ streaming service also beat estimates. And revenue from the company’s parks swung to a profit. Analysts greeted the news with ratings reiterations mixed with a few small target price increases. Perhaps the looming unknown effects of the Delta variant is keeping a lid on enthusiasm.

If you agree that DIS will stay above its 200-day moving average, consider the following trade that relies on the stock remaining above 175 through expiration in five weeks.

The stock quickly popped 5% on the news to hit a three-month high but retreated in Friday’s trading to close 1% higher. The shares have spent the past three months trading sideways after pulling back from an all-time high hit in early March. The 200-day moving average has recently been a major bastion of support. In fact, the last time DIS closed below this trendline was nearly 10 months ago. The 200-day sits just below the 175 level, which is the strike for the short put of our recommended credit spread. Thus, this trade is relying more on this support holding than DIS going on bullish run.

Buy to Open DIS 17Sep 170 put (DIS210917P170)
Sell to Open DIS 17Sep 175 put (DIS210917P175) for a credit of $1.05 (selling a vertical)

This credit is $0.04 less than the mid-point of the option spread when DIS was trading at $181. 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 $103.70. This trade reduces your buying power by $500 and makes your net investment $396.30 ($500 – $103.70).  If DIS closes above $175 on September 17, both options will expire worthless and your return on the spread would be 26% ($103.70 / $396.30).

Book a Marriott (MAR) Trade

Sunday, August 8th, 2021

Marriott (MAR) had mixed earnings results this week, beating on profits but missing on revenue. Given that the company is at the forefront of COVID-affected stocks, year-over-year comparisons are meaningless. But the company noted that leisure travel was picking up, though some bookings are being affected by the Delta variant spread. MAR also noted that staffing issues persisted. However, these headwinds are known and are probably baked into MAR’s price.

The Street appeared optimistic about the report, giving the stock a few target price increases (though there were no upgrades). The shares sagged about 1.4% the day after the report but recovered by the end of the week.

On the charts, the stock has gone nowhere for nearly six months. The bottom of the trading range is around the 135 level (green line in chart), which also is the location of the 200-day moving average (red line in chart). This trendline provided solid support on a pullback in mid-July. Note that this is also the location of the short put of our credit spread. Finally, the 50-day moving average (blue line in chart) has leveled off after a 2-1/2-month decline, a sign that the shares may have found a solid bottom.

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

Buy to Open MAR 17Sep 130 put (MAR210917P130)
Sell to Open MAR 17Sep 135 put (MAR210917P135) for a credit of $1.05 (selling a vertical)

This credit is $0.03 less than the mid-point of the option spread when MAR was trading at $141.59. 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 $103.70. This trade reduces your buying power by $500 and makes your net investment $396.30 ($500 – $103.70).  If MAR closes above $135 on September 17, both options will expire worthless and your return on the spread would be 26% ($103.70 / $396.30).

Order Up a Starbucks Spread

Sunday, August 1st, 2021

Starbucks (SBUX) posted a solid earnings report on Tuesday, easily beating both top- and bottom-line expectations. Year-over-year sales and earnings comparisons were ridiculously high, as SBUX was one of the hardest-hit businesses during the depths of last year’s pandemic-rocked economy. But the company grew sales from two years ago and blew out analyst estimates. To top it off, SBUX raised sales and earnings guidance for FY21.

The market did not react well to the report, however, as the stock fell 3.6% through the end of the week. This could be due to the company reporting increased wage and inflation pressure. But analysts were undeterred. While there were no upgrades, price targets were raised across the board, with some reaching as high as $145 (the stock closed at $121.43 on Friday). The average price target is above $128.

On the charts, the stock’s drop pulled it down to its rising 20-day moving average. This trendline supported a pullback in mid-July and has not allowed a daily close below it in more than a month. Note that the short put of our credit spread trade is right at the 20-day.

If you agree that SBUX will stay above its 20-day moving average (blue line in chart), consider the following trade that relies on the stock remaining above 120 (red line in chart) through expiration in seven weeks.

Buy to Open SBUX 17Sep 115 put (SBUX210917P115)
Sell to Open SBUX 17Sep 120 put (SBUX210917120) for a credit of $1.60 (selling a vertical)

This credit is $0.02 less than the mid-point of the option spread when SBUX was trading at $121.43. 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 $158.70. This trade reduces your buying power by $500 and makes your net investment $341.30 ($500 – $158.70).  If SBUX closes above $120 on September 17, both options will expire worthless and your return on the spread would be 46% ($158.70 / $341.30).

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).

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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.

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