Trade Alert: Your New Trade, a 30% Gain and an Update

This earnings season has kicked off, and I have a new trade for you today. I’ll also update you on Akamai Technologies and our portfolio, but first, I want to give you the details for our new profit opportunity.

This morning, Mattel Inc. (Nasdaq: MAT) posted earnings that were well below expectations, causing its stock to open down more than 5%. Since then, the shares have continued to tumble — and they’re now down around 10%.

Based on our historical research, we know this means the downtrend will continue for about another month.

So, today we’re going to profit from that.

Mattel, the largest U.S. toy maker, has come up before in our beta test. We traded it in January — in this same trend — and it handed us a 50% gain in two weeks on the first half of the trade. The second half gapped lower, and we were filled for a 14% loss. Nonetheless, our drift was intact — and overall, we exited with an average 18% gain.

This same earnings trend has appeared nine times in the past decade, and only one time did it not work out as expected. So odds are this time will be another success for us.

We will look to capitalize on this drift by grabbing the May 19, 2017 put options — allowing us to hold our position during our ideal time frame of roughly three weeks.

Here’s your action to take:

Action to Take
Buy Action to Take
Stock: Mattel Inc. (MAT)
Option Type: Put Option
Expiration: May-19-2017
Strike Price: $23
Option Symbol: MAT170519P00023000
Action: Buy to Open
Order Type: Limit Order
Duration: GTC (Good ‘Til Canceled)
Limit Price: $1.75
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 $1.75.
Once this order is filled, place the following order:
Sell Action to Take
Stock: Mattel Inc. (MAT)
Option Type: Put Option
Expiration: May-19-2017
Strike Price: $23
Option Symbol: MAT170519P00023000
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.

If you have any questions about this trade, please let me know at earningsdrift@banyanhill.com.

Now, let’s turn to a position that we recently closed out…

Locked in 10% in Akamai

In early April, we closed out the first half of our Akamai Technologies put options for a 50% gain. Immediately, we placed a stop on the second half to secure a 10% profit in the event the option pulled back.

If you followed those directions, well done. Akamai did pull back, and, as of yesterday, our orders to exit the second half were filled, handing us a 10% gain.

Overall, we walked away with a 30% return in just over two months. While the last half of the trade wasn’t quite a home run, this position still allowed us to quickly capitalize on our system — and put a nice amount of cash in our pockets.

If your close orders have not been filled for any reason, go ahead and exit Akamai at the market since I’m no longer following this position.

As for the rest of our portfolio, it is holding up nicely.

Our latest trade, the June $135 call options on Lam Research (Nasdaq: LRCX), is up a nice 44% already. The momentum from its earnings report has lifted the stock higher, and we could capture another 50% gain in quick fashion. I’ll let you know when it reaches that level.

In the meantime, make sure to have your orders to sell half the position for a 50% gain in place. If you don’t, you can read the trade details here.

We also have June $45 call options on Monster Beverage (Nasdaq: MNST). This position is basically where it was last week — still down about 30%. The expected exit date for this position is May 1, about a week away. However, this is also when the company is expected to report its first-quarter earnings report. It’s only two months past its fourth-quarter report from March 1, but companies typically push back the fourth-quarter announcement a bit to compile the annual reports.

The question is: Do we want to hang onto the option through this earnings report?

That wasn’t exactly what our system was designed for. See, more times than not, there’s no overlap in earnings during our holding periods — but, since it can happen, this type of scenario is actually included in our backtest data. So, as the position stays above our 75% loss threshold, let’s wait until May 1 and see if the company reports earnings.

Finally, there are our July $52.50 call options on Garmin (Nasdaq: GRMN). Like Monster, shares in Garmin haven’t done much recently, meaning our position is still down about 50% at the moment.

Based on our research, we know the drift for Garmin has basically come to an end. The stock hasn’t done as expected, but this is why we have our trading parameters in place — such as a planned exit date, a stop-loss strategy, etc. With that in mind, I don’t plan to hold this position much longer. Let’s just see if it can bounce higher next week and allow us to exit with a smaller loss. I’ll alert you immediately when it’s time to take action.

That’s all for this week.

Again, we are in the heat of earnings season with over a couple dozen companies on our radar set to report in the coming weeks. Keep paying close attention to your inbox so that you don’t miss one of these trades.

Regards,

Chad Shoop, CMT
Editor, Earnings Drift Alert