by Ian Harvey
December 13, 2018
Adobe Systems Incorporated (NASDAQ:ADBE) reports today after the market closes. “Earnings Predictions Members” were advised to buy a call option on the stock, which has already more than doubled since Monday. Now is “decision time” – to wait or take known profits?
It is sometimes best to exit a trade, if there is already sufficient profit accrued, before an earnings report is presented.
The Previous Details……..
The digital media and marketing software firm, Adobe Systems Incorporated
(NASDAQ:ADBE), will release its
most recent quarterly earnings report after the market closes. The consensus
earnings estimate is $1.89 per share on revenue of $2.42 billion; but the
Whisper number is higher at $1.93 per share. The company's guidance was for
earnings of approximately $1.87 per share. Consensus estimates are for
year-over-year earnings growth of 51.20% with revenue increasing by 20.60%.
Adobe has done a great job converting its business to a cloud-based
subscription model. The company has grown earnings 45% annually over the last
five years and analysts expect additional growth of 33% per annum over the next
five years. Adobe has a solid earnings track record with better than expected
earnings and revenues in each of the last four quarters.
PATIENCE PAYS OFF!
YOU NEED TO BE IN TO PROFIT!
** OPTION TRADE: Buy ADBE DEC 21 2018 240.000 CALL at approximately $8.75.
The Result So Far………
Traders were able to enter the trade at $7.40 on Monday.
On Tuesday the price of the option trade hit $15.84.
So, by exiting the trade before the earnings report is announced, a total potential profit of 114% could have been made. This would also relief any concerns of stock direction after the report.
Since the earnings report doesn’t come out until after the market closes, for those that wish to exit before the report, and hadn’t already done so, another chance is very likely.
AS ALWAYS THE DECISION IS YOURS!
What Could Cause Adobe’s Earnings Report to Falter?
There are two scenarios that could have a negative effect on Adobe’s march forward….
1. With the 50 day SMA, and the 200 day SMA now just 2.32 apart, ADBE, under threat of a poor earnings release, could see a negative market reaction exacerbated by a "death cross."
2. In the chart below you can see that the trend was broken in October; and then a perfect 61% retracement of the gains made over the life of that trend. This could mean that should there be a negative reaction to earnings, both the Fibonacci as well as a declining Pitchfork pattern, may suggest that this previous lower levels could be retested.
When To Exit A Trade Based On Earnings?
It is also worth considering, when options trading earnings reports – “Do we exit on already existing profits or leave the companies to report their earnings and hope for bigger profit?”
As most traders realize, there is a 50/50 chance that the company stock price could go either way after reporting earnings – even if the report is good, the stock price could reverse – and if you hold a call option, means depletion of an already good profit if it exists. And in this case with Adobe Systems, a potential profit of 114% was already available on Tuesday, one day after executing the trade.
A similar situation can be found if you hold a put option, and a report is not that sound (and you expect a profit from this) but the stock price can, at times move upwards due to traders bias or other external conditions.
An Important Note: That these suggestions for options trade considerations require investors/traders to use their own discretion as to when to enter or exit! As well, it is advisable to do further research and due diligence before executing your trade.
It is sometimes best to exit a trade, if there is already sufficient profit accrued, before an earnings report is presented. GREED can be the undoing of a nice profit!
"Trading Capital Management" is a key component of your trading strategy. The strategy, on which we base our trades to achieve maximum profit, and to minimize loss, is contingent on using an equal amount of money for each trade.……continue reading this article……
Our proven track record says it all!!
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