Option Trade 
Adobe Systems Incorporated (NASDAQ:ADBE) Calls 
Wednesday, March 16, 2016

**OPTION TRADE: Buy the ADBE Jul 2016 90.000 call (ADBE160715C00090000) at approximately $4.50. Place a pre-determined sell at $9.00.

Note: No protective stop losses added -- but if you wish to do so make it $1.80.

by Ian Harvey

March 16, 2016

Adobe Systems Incorporated (NASDAQ: ADBE), a San Jose, Calif.-based software products and services provider for professionals, marketers, application developers, enterprises and consumers, is set to post its Q116 quarterly earnings results after the market closes on Thursday, March 17th. Analysts expect Adobe Systems to post earnings of $0.61 per share, a rise almost 28 percent from the year-ago period: and revenue of $1.34 billion for the quarter, which would be about 20 percent higher than in the same period of last year, and also the highest quarterly revenue in the past two years. Last quarter the firm posted earnings of $0.47 for the quarter. This was $0.02 away from the analyst consensus, yielding a surprise factor of 4.44%.

Adobe is being driven by its’ continuous innovation in the Creative Cloud and Marketing Cloud businesses.

The Creative business under the Digital Media Solutions segment is seeing acceleration in Creative Cloud subscriptions. Also, the conversion of enterprise customers to Enterprise Term License Agreements (ETLAs) is resulting in higher adoption of its enterprise Creative Cloud offering.

Increased subscription, ETLA adoption and digital publishing suite adoption should drive Creative annualized recurring revenues.

There is a definite positive attitude towards Adobe's market position, its compelling product lines (including CS cloud initiative and digital media products), continued innovation and strong balance sheet. In addition, the consistent adoption of the Adobe marketing cloud could serve as a potential catalyst in the to-be-reported quarter.

Adobe Systems Incorporated is down 8.5% in 2016, after hitting a post-earnings all-time high of $96.42 in December. The stock took a dive in early February due to ugly guidance from a sector peer, but has since been on the road to recovery, and is trading 1.4% higher at $86.00 today. During its recent trek higher, ADBE climbed back atop its 320-day moving average -- a feat that could have positive implications for the shares going forward.

The past two times ADBE bounced off this moving average, the stock was positive 100% of the time five days later, with an average return of 5.3%, according to Schaeffer's Senior Quantitative Analyst Rocky White. After 21 days, ADBE generated an average return of 15.7%, and was positive each time. The stock's current action echoes this trend -- the shares rallied off their 320-day moving average about three weeks ago, and are up more than 6% since then.

Shares of Adobe Systems Incorporated will open at 86.83 today. The firm’s 50-day moving average is $83.80 and its 200-day moving average is $86.69. The firm has a market cap of $43.27 billion and a P/E ratio of 70.02. Adobe Systems Incorporated has a 1-year low of $71.27 and a 1-year high of $96.42.

For the fiscal first quarter, Adobe expects revenues in the range of $1.300 billion to $1.350 billion. Based on a share count of 506-508 million, GAAP earnings are expected within 33-39 cents per share, while non-GAAP earnings are expected in the 56-62 cents range.

Solaris Asset Management LLC raised its position in shares of Adobe Systems Incorporated by 1.3% during the fourth quarter. The institutional investor owned 38,799 shares of the software company’s stock after buying an additional 490 shares during the period.

A number of other large investors also recently made changes to their positions in KR, such as:-

• Chartist Inc. CA acquired a new position in Adobe Systems during the fourth quarter worth about $286,000.
• Reynolds Capital Management boosted its position in Adobe Systems by 6.7% in the fourth quarter. Reynolds Capital Management now owns 4,800 shares of the software company’s stock worth $451,000 after buying an additional 300 shares during the last quarter.
• CenturyLink Investment Management Co acquired a new position in Adobe Systems during the fourth quarter worth about $552,000.
• Finally, Hanseatic Management Services Inc. acquired a new position in Adobe Systems during the fourth quarter worth about $612,000.

Recent analyst activity saw JPMorgan Chase & Co. reaffirm its “buy” rating on shares of Adobe Systems. Zacks Investment Research raised Adobe Systems from a “strong sell” rating to a “hold” rating.

Also, several equities research analysts have recently commented on the company.

• Dougherty & Company analysts issued a Buy rating and upped their price target on Adobe Systems from $95.00 to $100.00.

• Oppenheimer analysts issued a Perform rating to this stock.

• ADBE received a stock rating upgrade to Outperform from Robert W. Baird. The analysts previously had Neutral rating on the stock.

Analysts largely appear to be in ADBE's corner already, and have earned a consensus recommendation of “Buy” from the twenty-nine brokerages that are presently covering the company. Nine analysts have rated the stock with a hold recommendation, seventeen have given a buy recommendation and one has assigned a strong buy recommendation to the company. The average 12 month price target among brokerages that have covered the stock in the last year is approximately $105.

Harvey’s Options Volatility Indicator

Therefore, based on the facts above, and Harvey’s Options Volatility Indicator, the following option trade is recommended…..

**OPTION TRADE: Buy the ADBE Jul 2016 90.000 call (ADBE160715C00090000) at approximately $4.50. Place a pre-determined sell at $9.00.

Note: No protective stop losses added -- but if you wish to do so make it $1.80.

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