Trade Alert: A 50% Gain in AKAM

Today, we have two trades: one to collect gains and one to preserve capital.

Let’s start with the gains…

This morning, shares of Akamai Technologies (Nasdaq: AKAM) fell over 2%. Since we own the May 19, 2017 $65 put option, that’s great news for us. This drop sent our puts up more than 50%.

We have a standing order to sell half of this position at a 50% gain, so our first half has officially closed for a 50% gain. This lines up right with our time frame. Our gain took less than two months to realize, and it came as we are nearing our exit date — April 7.

In the next week or two, I expect to see our gains climb even higher, so we’re not selling the whole position yet. But just in case there is a pullback in our option, let’s preserve our gains by placing a 10% protective stop-loss order on our remaining position.

As always, we will increase this stop accordingly as our gain continues to climb.

With that in mind, if your first half hasn’t closed yet, go ahead and sell half your put contracts at the market. Then place the following protective stop on your remaining position.

Remember to place this stop at whatever nets you a 10% gain. Based on our entry price of $5.05, we will place our stop loss at $5.55.

Here’s your action to take:

Action to Take — Place Stop-Loss
Stock: Akamai Technologies Inc. (AKAM)
Option Type: Put Option
Expiration: May-19-2017
Strike Price: $65
Option Symbol: AKAM170519P00065000
Action: Sell to Close
Order Type: Stop-Loss Order
Duration: GTC (Good ‘Til Canceled)
Limit Price: $5.55
Trade Deadline: Keep this order open until it is filled or canceled.

Now, I have one more trade for you today.

Preserve Capital in Lowe’s

Over the course of our 10 years of backtesting, we not only discovered the best time to enter an earnings-based trade, we also discovered the best period to hold it.

This allows us to exit before our options expire, either to preserve capital or take gains.

With that in mind, let’s turn to today’s trade, which has reached the end of its optimal holding period…

Today, our Lowe’s (NYSE: LOW) April 21, 2017 call option stands at a 50% loss.

We entered the position on March 1, after Lowe’s reported earnings that promised a nice updrift based on its historical trend. That has yet to come to fruition, and we are at the end of our timeline: Our exit is set for around April 1.

But instead of closing it out now, I want us to place a stop-loss order to give us a little time to capture one more bounce in the shares.

To do that, we are going to place a stop-loss at the specific price listed below.

Based on our official entry price, this would result in a 56% loss — which is never fun to face, but our winners (such as Akamai) more than make up for our occasional losses.

Keep in mind: Since we are setting the stop at a 56% loss, we are only giving the calls the ability to decline about 6% before we cut our losses and move on. I want to keep a tight rein on this position since we’re at the end of its optimal holding period.

Before placing this trade, you’ll need to cancel our standing order to sell half at a 50% gain.

Here’s your action to take:

Action to Take — Place Stop-Loss
Stock: Lowe’s Companies Inc. (LOW)
Option Type: Call Option
Expiration: Apr-21-2017
Strike Price: $82.50
Option Symbol: LOW170421C00082500
Action: Sell to Close
Order Type: Stop-Loss Order
Duration: GTC (Good ‘Til Canceled)
Limit Price: $0.80
Trade Deadline: Keep this order open until it is filled or canceled.

That’s all for this week.

I will continue to keep an eye on our portfolio, as well as check for any new trades. I’ll update you as soon as there is an action to take.

Regards,

Chad Shoop, CMT
Editor, Earnings Drift Alert