Earnings Predictions
for the
Week Beginning June 18, 2018

Trade War Considerations!

Exiting Options Trades
BEFORE or AFTER Earnings Reports?

by Ian Harvey

June 17, 2018

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Strategies To Consider When Exiting Earnings Predictions Options Trades…..

Let us review the trades for last week and see where our position stands in regard to potential profits!

It has been, again, a successful week for the “Earnings Predictions” members; out of five (5) trades, three provided great profits (see table below). The other two trades are still in play, but adjustments to the trades could be helpful (see details below).

It is also worth considering, when trading options on 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. 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.

This situation would have been appropriate for H & R Block Inc and Adobe Systems; but would have been detrimental for the other three trades, as seen in the charts below.


“EARNINGS PREDICTIONS for LAST WEEK” - TAKING PROFITS AFTER EARNINGS REPORTS!

DATE TRADE GAIN
June 11, 2018 PLAY JULY 20 2018 50.000 CALL P.P: 339%
June 14, 2018 MIK JULY 20 2018 20.000 PUT P.P: 203%
June 15, 2018 GOOS JULY 20 2018 45.000 CALL P.P: 522%

TOTAL potential profit for these 3 trades = P.P: 1,064%.


“EARNINGS PREDICTIONS for LAST WEEK” – 2 TRADES PERFORMING POORLY – BUT PROFITABLE BEFORE THE EARNINGS REPORT!

DATE TRADE GAIN
June 06, 2018 HRB JULY 20 2018 30.000 CALL P.P: 50%
June 14, 2018 ADBE JULY 20 2018 260.000 CALL P.P: 55%

The Result……

Now, a closer look at the two trades that went in opposite directions to our predictions, but were up before reporting earnings……so, for those traders that are still holding these trades, or for those wishing to enter the trades now, the following information might be beneficial…..click here to see how to trade these stocks now….

The Decision Is Yours!

Don’t miss out – check out further options trades recommended for the week ahead by becoming a member of Stock Options Made Easy “Earnings Predictions”.

Before You Trade Earnings This Week Consider This Information……

Markets opened lower on Friday after President Donald Trump and his administration announced that it will impose $50 billion worth of tariffs on goods from China. With trade war fears between the world's two largest economies heightened once again, expect Washington's "tit-for-tat tariff situation" with Beijing to come into focus; this could greatly affect companies reporting their quarterly earnings results this week.

The official White House statement said it would implement a 25% tariff on $50 billion of Chinese goods "that contain industrially significant technologies." China then responded in kind, noting that the country will roll out its own tariffs on American goods in "equal scale and equal strength."

Although some market-watchers think the tariff debacle could dissipate due to its negative impact on economies, geopolitical relations and stocks; be prepared for the situation to weigh on stocks as the market entered Monday's trading session, as it appears that President Trump is unlikely to budge in his decision.

My Suggestion…..if you have made good profit before the earnings report it would be prudent to exit, at this stage.

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.

GETTING OUT WHILST THE GOING IS GOOD!

GREED CAN BE THE UNDOING OF A GOOD PROFIT!

Options Trades to Consider Based on Expected Earnings Reports:

Tuesday, June 19

Cloud computing giant Oracle Corporation (NYSE:ORCL) will report its latest quarterly earnings report after the market closes on June 19.

The consensus earnings estimate is $0.94 per share on revenue of $11.20 billion; however, the Whisper number is for $0.96 per share. The company's guidance was for earnings of $0.89 to $0.92 per share. Consensus estimates are for year-over-year earnings growth of 8.05% with revenue increasing by 2.83%.

ORCL took a huge hit following the company’s last quarterly report. The stock sold off sharply on weaker than expected sales, mainly a result of disappointing revenue from its new cloud computing division. Cloud computing is one of the fastest growing areas in technology, and Oracle’s weak showing last quarter took its toll on the stock.

Also, Oracle shares have slumped in recent days as analysts have become more pessimistic on the company, with many pointing to its struggle to maintain market share against Amazon AMZN and Microsoft MSFT. Both Amazon and Microsoft have emerged as clear leaders in the cloud computing space.

Soft outlook for the cloud business remains an overhang for Oracle. Cloud revenues including Software as a service (SaaS), Platform as a Service (PaaS) and Infrastructure as a Service (IaaS) are expected to grow between 19% and 23% (17-21% in constant currency), much lower than 32% (29% in constant currency)  reported in the last quarter.

As well, higher investments on IaaS platform will affect gross margin expansion in the near term.

There is a lot of bearish sentiment toward the stock at this time, and barring a huge earnings beat, it is going to be difficult for the stock to fall back in favor with Wall Street.

Option trade to consider: Buy the ORCL JULY 20 2018 45.000 PUT at approximately $0.90.

Shipping giant FedEx Corporation (NYSE:FDX) will report its fiscal fourth-quarter results after the market closes. The consensus earnings estimate is for $5.71 per share on revenue of $17.19 billion; but the Whisper number is for $5.76 per share. Consensus estimates are for year-over-year earnings growth of 34.35% with revenue increasing by 9.30%.

Shares of FedEx are up over 25% in the last year and have also climbed 6% during the last four weeks. Overall earnings estimates have been revised higher since the company's last earnings release. In fact, over the past month, current quarter estimates have risen from $5.52 per share to $5.71 per share, while current year estimates have risen from $14.84 per share to $15.13 per share.

Strong e-commerce growth is likely to aid FedEx’s results, and growth is expected across all major divisions of the company; with earnings rising 18.8% per annum over the last five years, and analysts expect to see earnings continue to rise by an average 15.0% a year over the next five years. Lower tax rates following the introduction of the Tax Cuts and Jobs Act late last year, are also expected to boost the bottom line.

Consumer confidence is high, with low unemployment and rising wages, which should continue to keep demand high for FedEx as more and more shopping is done online. With the strong growth estimates, and a forward P/E of just 15.1, there appears to be a lot of value left in the stock.

FDX has put some impressive earnings beats each of the last two quarters, and the street expects another beat for the company’s most recent quarter. Analysts have a $287.13 price target on the stock.

Option trade to consider: Buy the FDX JULY 20 2018 270.000 CALL at approximately $4.70.

Wednesday, June 20

Idaho-based Micron Technology, Inc. (NASDAQ: MU), a memory chip manufacturer, will announce its most recent quarterly financial results after the closing bell. The consensus earnings estimate is for $3.10 per share on revenue of $7.70 billion; however, the Whisper number is for $3.16 per share. The company's guidance was for earnings of $2.76 to $2.90 per share. Consensus estimates are for year-over-year earnings growth of 102.61% with revenue increasing by 38.34%.

MU shares have outperformed in 2018, with the stock rising 32.8% year to date. Short interest has decreased by 3.4% and overall earnings estimates have been revised higher since the company's last earnings release.  

2018 has been volatile for MU. Even though the stock is up nicely on the year, those gains came in the first quarter, and since that time MU had fallen sharply; due to expectations of a trade war, only to rebound when it looked like the two nations would be able to avoid a trade war through negotiations.  

MU has recovered in a very short period of time. But now, as mentioned earlier in this report, the fear is back of an all-out trade war between the U.S. and China. President Trump has moved forward with $50 billion in tariffs on Chinese goods, and China has vowed to reciprocate in kind… once again raising fears of a trade war and putting pressure on MU and all the major chip makers.

It is important to note that MU trades at a very low valuation, with a forward P/E of just 5.3. While the valuation did not prevent a major sell off earlier in the year, it does offer some protection in the event that the overall market moves lower. 

I suggest that MU options trades be played in two ways…..

1.      As an expectation that the trade war is inevitable, and stock prices are likely to falter on Monday, the following options trade should be applicable…..

Option trade to consider: Buy the MU JULY 20 2018 57.500 PUT at approximately $3.20.

2.      Be prepared to sell this trade, obviously at a profit, before earnings if the market starts to swing back to a positive – again this could be expected. If this happens consider the following action just before earnings are reported or if the market shrugs off concerns over the tariff debacle…..

Option trade to consider: Buy the MU JULY 20 2018 60.000 CALL at approximately $2.90.

Thursday, June 21

A player in the technology space, Red Hat Inc. (NYSE:RHT), a global provider of open source software solutions, using a community-powered approach to develop and offer operating system, middleware, virtualization, storage and cloud technologies, will report earnings after the market closes. Red Hat is projected to report adjusted earnings of $0.68 per share and revenue of $807.3 million. These figures would represent year-over-year growth of 21.4% and 19.3%, respectively. The company's guidance was for earnings of approximately $0.68 per share on revenue of $800.00 million to $810.00 million.

Short interest has decreased by 11.1% and overall earnings estimates have been revised higher since the company's last earnings release.

Red Hat still has a lot of market share to move into. Enterprise software is a huge market, widely expected to see total sales of nearly $400 billion in 2018. Red Hat's part of this is about $2.9 billion today. As the company continues to expand its target markets while building a rock-solid reputation out of its proven successes, Red Hat's growth story should continue positively.

At the moment, Red Hat is cementing a central position in the cloud computing market with top-shelf products such as its namesake Red Hat Enterprise Linux, the OpenStack cloud platform, OpenShift software containers, and Ansible automation tools. Built on a foundation of open-source software development, all of these products are designed to work well alongside other companies' solutions.

Shares of Red Hat have already added about 45% so far this year

Option trade to consider: Buy the RHT JULY 20 2018 180.000 CALL at approximately $4.20 TO $4.50.

PLEASE NOTE: Red Hat has reported a series of strong quarters, and another set of good results is expected. However, the stock has a tendency to get hammered even on excellent results.

If this happens again, consider doubling-down, as the stock tends to rise again shortly afterwards.

Friday, June 22

Auto retailer CarMax, Inc. (NYSE:KMX) will report earnings before the market opens. The consensus earnings estimate is for $1.22 per share on revenue of $4.64 billion. The Whisper number is $1.25 per share. Consensus estimates are for year-over-year earnings growth of 7.96% with revenue increasing by 2.15%.

CarMax is making solid progress toward its broader goal of building scale in the huge, but fragmented, market for used cars sales. The country's largest pre-owned automotive retailer has been busy expanding its physical sales base while also building out its digital shopping tools as people move more of their car shopping process online.

Expect to see evidence of sales activity picking back up at CarMax's lots as the pricing pressure lessens. At the same time, the retailer's growth should stay solidly above that of the broader used car market to extend its long track record of market share gains.

CarMax achieved higher profits from its financing arm, which bodes well for future earnings gains. And its core profitability metric, the profit it generates per vehicle sold, held steady at $2,100.

Also, expect progress CarMax made at building out their digital sales infrastructure. CarMax has been piloting a new program, for example, that allows shoppers to complete nearly all elements of a purchase online so that the entire physical part of the process amounts to just a 15-minute trip to the store to collect the automobile.

Last quarter CarMax disappointed, but the street expects a better than expected report for the company’s most recent quarter as seen by the whisper number. There is plenty of value in the stock after extreme selling pressure during the latter part of 2017 and early months of 2018, along with a forward P/E of just 15.0 and earnings expected to rise 19.5% during the current year, KMX should be able to extend its recent gains.

Technical indicators for KMX are bullish with an upward trend. The stock has recent support above $69 and recent resistance below $74. Analysts have a $78.15 price target on the stock.

Option trade to consider: Buy the KMX JULY 20 2018 75.000 CALL at approximately $1.50.

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.

If you wish to receive more options trading recommendations similar to this, which will help boost your portfolio strategy, check out the other  memberships available at Stock Options Made Easy.


”Success is simple. Do what's right, the right way, at the right time.”

Option Tip for your Success!

Options traders are not successful because they win.

Options traders win because they are successful.


Best of Trading,
Ian Harvey
Director of Stock Options Made Easy


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”Success is simple. Do what's right, the right way, at the right time.”


Option Tip for your Success!
Options traders are not successful because they win.
Options traders win because they are successful.



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