Trade Alert: A New Buy and a Triple-Digit Gain

We have a few trades to make today, so let’s jump right in.

To start, I have another brand-new buy for you. Then we’re going to manage two existing positions: In Lam Research (Nasdaq: LRCX), we’ll adjust our stop to lock in a triple-digit gain, and in Garmin (Nasdaq: GRMN), we’ll be preserving capital.

But first things first: Let’s enter today’s trade.

For our new opportunity, we look to Edwards Lifesciences Corporation (NYSE: EW).

The company reported earnings after the closing bell yesterday, and the results did not disappoint.

Edwards Lifesciences, a medical device maker, saw its shares pop over 10% this morning after it beat earnings expectations by 14%. The company’s revenue also topped forecasts, and it issued upbeat guidance for the rest of the year amid strong demand.

Based on our research, the best way to play an earnings beat like this is to grab call options and hold them for about two months.

This scenario has occurred five times over the last 10 years, and in four of those five instances, the stock saw sizable gains. In fact, it experienced a single-digit gain — 6% — just once, while the other three occasions were double-digit returns. And the only time it was down, it still popped 4% in the first week — which would have handed us a 50% gain in the options market.

So let’s jump into this trade today by grabbing the June 16, 2017 $105 call option.

Here’s your action to take:

Action to Take
Buy Action to Take
Stock: Edwards Lifesciences Corporation (EW)
Option Type: Call Option
Expiration: Jun-16-2017
Strike Price: $105
Option Symbol: EW170616C00105000
Action: Buy to Open
Order Type: Limit Order
Duration: GTC (Good ‘Til Canceled)
Limit Price: $6
Trade Deadline: If your order is not filled by my next update, I will update you on the trade.
Note: Do not place a market order. Set the limit order at $6.
Once this order is filled, place the following order:
Sell Action to Take
Stock: Edwards Lifesciences Corporation (EW)
Option Type: Call Option
Expiration: Jun-16-2017
Strike Price: $105
Option Symbol: EW170616C00105000
Action: Sell to Close Half
Order Type: Limit Order
Duration: GTC (Good ‘Til Canceled)
Limit Price: Whatever nets you a 50% gain.
Trade Deadline: Keep this order open until it is filled or canceled.
Note: This second order will allow us to collect a 50% gain on half of our position in the event that a quick move happens before I can get a trade alert out to you.

Managing Our Positions

Now for our other positions, here’s how we are going to manage them…

Lam Research has continued to climb, and our position is now up 125% in less than a week. We locked in a 50% gain in just three trading days already, and now it’s time to increase our standing stop-loss order to secure a 100% gain on the second half of this trade.

Our official entry price is $5.25, so $10.50 is where we’re placing our stop-loss order to secure a 100% gain. Go ahead and move your stop to whatever nets you a 100% gain on the remaining position.

Here’s your action to take:

Action to Take
Sell Action to Take
Stock: Lam Research Corporation (LRCX)
Option Type: Call Option
Expiration: Jun-16-2017
Strike Price: $135
Option Symbol: LRCX170616C00135000
Action: Sell to Close
Order Type: Stop-Loss Order
Duration: GTC (Good ‘Til Canceled)
Limit Price: $10.50
Trade Deadline: Keep this order open until it is filled or canceled.

As the position continues to climb, we will continue increasing our stop to secure even greater gains.

Now, on to Garmin.

We own the July $52.50 call options and are currently down 43%. If we were to use our ideal hold time, we would have exited this about a week ago (for about a 50% loss).

Given the overall sentiment in the market, we let the position ride a little longer to see if it could turn around. It hasn’t. So let’s exit this position by placing a stop-loss order at $1.25. At last glance, the option was trading at $1.40.

If our orders get executed immediately, that’s fine. Our goal is just to preserve capital, and this stop will limit our position to an overall 49.3% loss — less painful than our 75% max-loss rule.

Still, losses are never fun. It’s just prudent to manage positions carefully, and not let them enter unchartered waters by hanging on longer than our system advises.

You will need to exit our standing order to sell half the position at a 50% gain. Then you can place the following stop-loss.

Here’s your action to take:

Action to Take
Sell Action to Take
Stock: Garmin Ltd. (GRMN)
Option Type: Call Option
Expiration: Jul-21-2017
Strike Price: $52.50
Option Symbol: GRMN170721C00052500
Action: Sell to Close
Order Type: Stop-Loss Order
Duration: GTC (Good ‘Til Canceled)
Limit Price: $1.25
Trade Deadline: Keep this order open until it is filled or canceled.

That’s all for today. But just a quick note on yesterday’s trade in Caterpillar (NYSE: CAT): Our orders for entering the July $105 calls were filled, and our official entry price is $3.30. In fact, in just one day, our calls are already up 35%. So be sure to have your orders for selling half at a 50% gain in place. I’ll alert you if those are hit.

There are still several companies on our radar that will be reporting earnings in the next few days, so we could have several more trade alerts. Pay close attention to your inbox so that you don’t miss a profit opportunity.

Regards,

Chad Shoop, CMT
Editor, Earnings Drift Alert